By Ian Maleve
The government of Kenya is considering raising the tax-free threshold on personal income above the current Sh24,000 per month as part of measures to provide relief to low- and middle-income earners.
If implemented, this move could bring much-needed fiscal breathing space to workers and spur consumer spending at a time of rising living costs.
Under the current law, residents earning up to Sh24,000 per month pay no income tax a threshold many stakeholders argue has become outdated amid inflation and economic pressures.
The proposed increase would be aimed at adjusting to these realities and ensuring that marginal employees retain more of their gross income.
Tax experts have welcomed the measure, noting that it would effectively raise disposable income across a wide swathe of the workforce.
“Adjusting the threshold is a practical way to ease the burden on lower-income groups without slashing government revenue significantly,” said a fiscal analyst.
However, raising the threshold comes with downsides. The Kenya Revenue Authority (KRA) and Treasury must evaluate the potential revenue shortfall.
Current budget projections already account for tight fiscal policy, with authorities targeting additional revenue of Ksh25 to Ksh30 billion through administrative reforms and tightening tax incentives rather than increasing taxes.
Indeed, the government is pursuing a new revenue-raising strategy focused on enhancing tax compliance and rationalizing exemptions. This suggests that any additional cost from raising the threshold must be offset elsewhere.
Policymakers face the challenge of balancing relief for wage earners with the fiscal constraints arising from a growing budget deficit and high debt levels.
Public sentiment is also a critical consideration. In 2024, aggressive tax proposals sparked deadly protests, prompting the government to abandon controversial tax hikes. Any new fiscal reform including raising the tax-free threshold will need to be communicated carefully to avoid reigniting unrest.
As discussions continue, parliament will likely scrutinize the proposal within the broader framework of the Finance Bill 2025. Key questions for lawmakers include: how much revenue would be forgone? Will the measure primarily benefit the intended demographic? And what compensatory measures will the Treasury deploy to uphold budget stability?
For now, workers and employers alike are watching closely, hopeful that an increase in the tax-free threshold will deliver tangible relief and signal responsiveness from a government mindful of socio-economic pressures.
