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law, residents earning up to Sh24,000 per month pay no income tax a threshold many stakeholders argue has become outdated amid inflation and economic pressures.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.

By Ian Maleve

Kenya’s shilling has remained largely unchanged at around 129 units to the US dollar for the past year, presenting a mixed bag of outcomes for traders, commercial banks, and import-driven businesses.

After a sharp depreciation in early 2023 that pushed the local currency to record lows of over 160 per dollar, the Central Bank of Kenya (CBK) adopted a series of monetary tightening policies, including aggressive interest rate hikes and increased forex market supervision.

These measures helped to stabilise the shilling and anchor inflation expectations. However, the currency has now settled at a new plateau of 129 to the dollar, staying within a narrow trading range for the last twelve months.

This stability has come as a relief for importers, many of whom were battered by the earlier volatility that inflated the cost of essential goods, raw materials, and petroleum products.

The predictability in exchange rates has allowed businesses to plan better, reduce forex hedging costs, and avoid pricing shocks. Traders dealing in machinery, electronics, and consumer goods have particularly benefited from the steady rate.

On the other hand, commercial banks and currency dealers have seen a decline in forex trading income. With the shilling locked in a narrow band, the opportunities for arbitrage and speculative gains have diminished.

Several banks, which previously posted sharp increases in forex trading income during periods of volatility, have now reported a cooling in their non-interest revenue streams.

Exporters, too, are feeling the pinch. A relatively stronger shilling has eroded the earnings of firms selling goods abroad, particularly those in the horticulture, tea, and coffee sectors.

The lower forex conversion gains have led some to call for a more flexible exchange rate policy to help cushion them against external shocks.

Analysts argue that while the current rate stability is welcome, it also masks underlying vulnerabilities, including high external debt repayments and a narrowing current account deficit.

With the CBK expected to maintain a tight monetary stance and investor inflows remaining steady, the shilling is likely to remain in its current range in the near term unless global shocks or domestic political risks shift the balance.