The government has outlined new conditions that must be fulfilled before implementing its planned reductions in key taxes, including Pay As You Earn (PAYE), Value Added Tax (VAT), and income tax, as it seeks to balance fiscal sustainability with taxpayer relief. The policy shift comes nearly three weeks after assurances from President William Ruto and Treasury Cabinet Secretary John Mbadi that the administration was committed to lowering major taxes to ease the cost of living. Treasury Principal Secretary Chris Kiptoo stated that the tax reduction plans will depend on the expansion of the tax base.
During his appearance before the National Assembly’s Departmental Committee on Finance and National Planning to present the 2026 Budget Policy Statement, Treasury Principal Secretary Chris Kiptoo said that the tax reduction plans will depend on the expansion of the tax base, adding that the government must first improve revenue collection coverage before cutting rates.
Kiptoo explained that the administration is working closely with the Kenya Revenue Authority (KRA) to identify innovative ways of bringing more taxpayers into the formal tax system, especially those who have been evading compliance.
"We are very serious about reducing tax rates just as the CS said and as envisioned in our medium term revenue strategy and tax policy. We would like to reduce taxes; we want to see PAYE, VAT, and income tax come down. However, this will only be possible if we expand the tax base," Kiptoo stated.
Members of the Departmental Committee on Finance and National Planning raised concerns about the proposed reforms and asked the Treasury to provide clear timelines for when the tax reduction proposals would be presented.
Lawmakers also questioned how the government intends to manage revenue shortfalls against rising expenditure projections for the 2026/27 financial year, as pressure mounts to ensure sustainable public financing.
The Treasury has not yet formally submitted the tax reduction proposals to Parliament, although it is worth noting that the budget formulation process and the upcoming Finance Bill are still in the early stages of preparation.
The administration is considering lowering income tax rates for salaried workers earning up to Ksh50,000 per month, with proposals to reduce the current 30 percent rate to about 25 percent, pending legislative approval.
Further proposals are also under review to exempt Kenyans earning below Ksh30,000 from income tax altogether as part of broader efforts to support low-income households.
Treasury officials said the reforms will follow the country’s Medium Term Revenue Strategy and national tax policy framework, which aim to simplify taxation systems, harmonise laws, and create room for future adjustments.
In response to revenue collection challenges, the government has allocated an additional Ksh20 billion (USD 154.6 million) to KRA in the 2026/27 financial year to strengthen enforcement and improve compliance monitoring in the BPS.
