Good News for Kenyans? Government Eyes Lower VAT and PAYE Rates Next Year
The Kenyan government is exploring modest reductions in Value Added Tax (VAT) and income tax rates as part of the upcoming Finance Bill 2026, in a bid to provide relief to households grappling with high living costs.
Treasury Principal Secretary Chris Kiptoo revealed these considerations during a briefing at the National Assembly's legislative retreat in Naivasha on January 29, 2026. Speaking on the state of the economy and tax reforms, he stated: “Our aim is that, if the situation allows, we want to ensure that tax rates such as VAT are brought down.” He specifically pointed to a possible drop in VAT from the current 16% to 15%, with similar adjustments potentially coming to income tax brackets—though everything hinges on available fiscal space and broader economic conditions.
Kiptoo stressed the need for caution, warning that lowering rates without corresponding growth in the tax base or economic expansion could strain government revenue and jeopardize funding for essential services. “The challenge is when you adjust downwards, and you do not get a corresponding expansion, then a challenge arises,” he noted, emphasizing a balanced approach guided by the Medium-Term Revenue Strategy and National Tax Policy to simplify and harmonize taxes while maintaining fiscal stability.
Illustrating potential benefits for ordinary Kenyans:
-For an average earner making KSh 100,000 monthly, current income tax deductions hover around KSh 30,000; a targeted cut could reduce this by roughly KSh 3,000, boosting take-home pay
-On the VAT side, trimming the rate by 1 percentage point would lower the effective cost on goods—for example, a KSh 1,000 item would fall from KSh 1,160 to KSh 1,150. For a household spending KSh 50,000 monthly on VAT-liable items, this translates to about KSh 500 in monthly savings.
-Combined, such measures could deliver an extra KSh 3,500 or so per month to the average household, increasing disposable income for spending, savings, or investment.
These proposals respond to widespread public calls for reviewing burdensome elements of the tax system, including PAYE, housing levy, SHA premiums, and other deductions that have squeezed salaried workers and businesses amid rising costs.
The Treasury plans to finalize details for the Finance Bill 2026 next week, starting with Cabinet approval, followed by inclusion in the Budget Policy Statement (BPS). The full bill will then head to Parliament for debate and enactment during the upcoming budget cycle.
While opposition figures like former Deputy Chief of Staff and presidential hopeful Eliud Owalo have pushed for more aggressive cuts—such as slashing income tax to 20% and VAT to 10%—the government's signaled approach remains measured, prioritizing sustainability over drastic relief that could risk public finances.
