Relief for Workers Earning Below Sh50,000 Put on Hold

Planned tax relief for salaried Kenyans earning below Sh50,000 has been paused after rising fuel prices linked to the Iran war forced the government to review its revenue plans.

The relief, which had been expected in the Finance Bill 2026, would have increased monthly take-home pay by between Sh731 and Sh2,127 for more than one million low-income employees through reductions in Pay As You Earn (PAYE) tax.

Treasury Cabinet Secretary John Mbadi said initial simulations showed the PAYE reduction would cost the government about Sh35 billion annually. At the same time, the temporary reduction of VAT on petroleum products from 13 percent to 8 percent is expected to reduce revenue by about Sh12.9 billion over three months.

The Treasury has therefore paused the tax cuts as it reviews the broader economic impact of the Middle East conflict and the pressure caused by rising fuel prices. Despite the delay, the government says it is still considering whether to reintroduce the PAYE adjustment through amendments to the Finance Bill. Officials are currently reviewing Kenya Revenue Authority data for March, April, and May to assess the possible fiscal impact.

The proposed tax relief had been expected to benefit low-income salaried workers by increasing their net monthly earnings. Payroll taxes remain the government’s largest source of revenue, generating Sh560.5 billion in the year ended June 30, 2025, compared to Sh488.1 billion previously.

Treasury is also assessing wider economic concerns arising from the Middle East conflict, including fears of fuel shortages, inflationary pressure, weaker consumer spending, and slower economic growth. Kenya’s 2026 growth projection has already been revised down from 5.3 percent to 5 percent, with further declines possible if the conflict continues.