KBA Pushes for 5% PAYE Cut to Boost Salaries and Economic Growth
Kenyan bankers are really pushing hard for a major tax relief plan which they genuinely believe could land more cash in people’s pockets, give businesses a bit more of a boost, and generally strengthen the country’s economy.
This proposal, and it’s backed by the Kenya Bankers Association (KBA), is calling for a uniform 5% cut in Pay As You Earn (PAYE) tax across all income levels – that’s across the board.
Now, the banking industry reckon this could really do the trick for people who are currently struggling to make ends meet with rising living costs and all sorts of other deductions eating into their wage packets.
KBA Says Tax Cut Would Boost Economic Activity
In a statement KBA said that slashing PAYE would effectively inject about Ksh 28.1 billion back into the economy each year with people likely to throw that money straight back into the economy through a hike in household spending and demand.
The Association reckons that higher take home pay would encourage more consumer spending, be better for savings, and give a bit more life to investment activity across different sectors.
Bankers are convinced the effect would be felt across the board in terms of traders, manufacturers and small businesses, as they would benefit from increased demand for their goods and services.
Thousands of Jobs Could Be Created
At the same time the banking industry are linking this proposed tax cut to new jobs, especially in the MSME sector.
According to KBA for every Ksh 1 billion that’s invested in small, medium and micro enterprises it supports around 1,300 jobs a year.
“On top of that the extra disposable income will support around 36,000 new jobs each year, driven by increased demand and expanded business operations,” they said.
KBA also reckon that a bit more household income could unlock up to Ksh 140 billion in formal lending capacity, which would give businesses more scope to expand their operations and invest with a bit more confidence.
Workers Under Pressure From Multiple Deductions
The proposal comes at a time when people are really struggling with the high cost of living and the fact that they’re not getting much return from their wages.
The Association reckon that people’s real incomes have actually gone down by 10.7% to 12% over the last five years due to more taxation and higher living expenses.
Workers have got a whole load of deductions taken out of their wages – PAYE, the Affordable Housing Levy, SHIF contributions and enhanced NSSF deductions, so the bankers lobby say these are the real reason why many families are really struggling to make ends meet.
KBA Questions Kenya’s Current PAYE Structure
The banking industry has been flagging an imbalance in Kenya’s tax structure – they just can’t seem to get around this glaring fault in the system.
According to KBA, Kenya’s top PAYE rate clocks in at a whoppin 35% . And get this – that’s higher than the 30% corporate tax rate slapped onto companies. That’s just not fair according to KBA, and it undermines the principles as outlined in the 2023 National Tax Policy, which flat out says that individuals shouldn’t be shouldering the weight of these taxes more than corporations.
KBA reckons that chopping that PAYE rate by 5% would put things back into some semblance of order and help get the economy moving again.
Bankers Say Revenue Loss Could Recover Within a Year
We know that tax cuts often raise eyebrows about reduced government revenue, but the banking industry reckons that the long-term play will be worth it. They say that any initial loss will be more than made up in the long run by the boost to the economy.
“Projects show that a 5% PAYE reduction could up the GDP by around KES 210 billion and bring in a further KES 27-31 billion in tax revenues – that’s a chunk of change that would essentially pay for itself within one financial year through all the new economic activity coming online,” KBA said.
They insist that stronger household spending, business growth and an increase in lending will all come together in the end to widen the tax base and improve the country’s fiscal health.
Focus Shifts to Household Purchasing Power
The proposal is just the latest development in the much wider debate about taxation, household incomes, and getting the economy back on track in Kenya.
KBA has been saying all along that boosting purchasing power is key to getting things moving again – whether that’s supporting enterprises, creating jobs, or giving the economy some much-needed stability over the long haul.
In Other News : Kenya Delays Tax Relief Plan as Treasury Fears Revenue Loss
KBA Pushes for 5% PAYE Cut to Boost Salaries and Economic Growth
