Drop in the ocean: Why analysts have issues with Ruto's tax cuts

President Ruto’s government proposal to cut income tax for low-income earners is being dismissed by analysts as a politically driven gesture that provides minimal relief to workers already struggling with multiple mandatory deductions and a severe cost-of-living crisis.

Ruto and Treasury Cabinet Secretary John Mbadi have touted the planned review of Pay As You Earn (PAYE) rates for workers earning Sh50,000 or less per month as a major step, claiming it will boost disposable income for 1.5 million people.

Under the planned Tax Laws (Amendment) Bill, the lowest income band subject to PAYE would be raised.

Individuals earning up to Sh30,000 monthly would pay nothing, while those earning between Sh30,001 and Sh50,000 would see their rate cut to 25 per cent from 30 per cent. 

“This intervention aims to provide relief for low-income workers,” Mbadi said last week, dismissing claims it was linked to the upcoming 2027 general elections.

However, critics argue the move is largely symbolic. They point out that workers earning below Sh24,000 were already effectively exempt from PAYE due to existing tax bands and a personal relief deduction. The change, they say, merely shifts the exemption ceiling slightly upward.

Poverty and inequality watchdog Oxfam International said the proposed adjustment was a positive but insufficient step.

“It is great to see the government taking a first step to alleviate the tax burden on low-paid workers. As Oxfam showed in its recent inequality report, low-paid workers and poor Kenyans shoulder a disproportionate share of the tax burden compared to the richest,” Inequality Policy & Research Advisor at Oxfam International Anthony Kamande told The Standard in an interview. 

“The government needs to do more to put more money into the pockets of the majority. Low-paid workers should also be exempted from paying the housing levy. Healthcare should be taxpayer-funded, not an additional levy on the same struggling workers,” Kamande said.

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He called for more ambitious reforms, stating, “Importantly, the richest must pay their fair share of taxes, as the rest of us are doing... It is unconscionable that a teacher pays up to 35 per cent of their salary in taxes and levies, while a billionaire pays at most 15 per cent on capital gains and dividends.”

Other analysts echoed the sentiment that the proposal falls short.

“This is a campaign strategy meant to blindfold the targeted group,” said Prof Samuel Nyandemo, an economist at the University of Nairobi. “With the various deductions, Kenyans’ payslips are already ein bad shape. The way out is a progressive tax policy which caters for all groups.”

The proposed tweaks come after 18 months of aggressive revenue-raising measures by the Ruto administration, including the introduction of a 1.5 per cent Housing Levy and a 2.75 per cent charge for the new Social Health Insurance Fund (SHIF), all deducted at source from formal sector salaries.

The debate over tax relief is set against a backdrop of shrinking take-home pay. Just days ago, the Federation of Kenya Employers (FKE) warned that employees would see their net pay reduce further this month when the fourth and final phase of higher National Social Security Fund (NSSF) pension contributions took effect.

The mandatory hike raises the maximum monthly employee deduction to Sh6,480. Employers must match this, bringing the total potential contribution per worker to Sh12,960. 

FKE’s Executive Director, Jacqueline Mugo,  said recently while pension savings are critical, “the cumulative effect of payroll deductions and the resulting impact on employees’ take-home pay... is a significant issue.”

This mounting burden is acutely visible in the public sector. A recent report by the Auditor-General found half of police and prisons officers and a fifth of civil servants, now take home less than one-third of their gross salary after statutory deductions.

Financial experts and industry bodies on Sunday argued the government’s latest approach is misplaced and are calling for more serious, systemic reforms to shield low- and middle-income earners.

Deepak Dave, of risk advisory firm Autonomi Capital, called the proposed exemptions “purely a political signal,” with minimal practical effect.

“An even more powerful indication would be to scrap all deductions for those earning up to Sh50,000 —no NSSF, no SHIF, nothing,” Dave told The Standard. “This makes it easier to hire low-income workers and allows for a meaningful rise in the minimum wage.”

He also advocated scrapping numerous complex excise duties and levies, replacing them with a single higher Value Added Tax (VAT), so that “the only people paying higher rates are high spenders.”

The Kenya Bankers Association (KBA) has proposed a uniform five per cent reduction in PAYE rates across all income bands, not just the lowest. It argues this would broadly increase disposable income, stimulate household consumption and ultimately boost government revenue through increased VAT and corporate taxes from a more vibrant economy.