National Treasury Cabinet Secretary John Mbadi has announced plans to raise the tax-free salary band to Sh30,000, up from the current Sh24,000.
Speaking during a public participation forum on budget processes in Meru town on Monday, Mr Mbadi said the tax laws amendment bill is ready for presentation to parliament.
“We have already agreed with the president that low-income earners should be given a tax reprieve. We will not wait for the finance bill to make the changes,” he said.
According to Mr Mbadi, the amendments will eliminate Pay as You Earn (PAYE) deduction for workers earning below Sh30,000, up from the current Sh24,000.
“Out of 3 million employed Kenyans, 1.5 million workers earn below Sh30,000. I believe the MPs will approve the proposal to remove the tax,” the CS said.
CS Mbadi proposes that workers earning between Sh30,000 and Sh50,000 pay a PAYE of 25 percent, down from 30 percent on the extra Sh20,000.
“Kenyans earning Sh50,000 will benefit from the tax relief on the first Sh30,000 and a reduced taxation on the next Sh20,000. This means the low-income earners will have more money in their pockets. The principles of taxation dictate that you tax wealth and reduce taxing income,” he said.
He said the proposed tax relief will benefit more than 1.7 million working Kenyans who earn below Sh50,000.
“Once we have done this, we will be going after those who are making big money in business but not paying taxes. KRA will intensify monitoring of all Kenyans to ensure those making money are paying tax,” he said.
Mr Mbadi cited rental income earners, who should be paying up to Sh100 billion in taxes, but only Sh17 billion is realized.
The proposal by the Treasury comes days after banks and Saccos appealed for raising the tax-free salary band to Sh40,000, citing inflation.
Earlier, the World Bank had proposed that Kenya increase the top rate of income tax to 38 percent and reduce the tax rate for those earning between Sh32,000 and Sh166,000 to 25 percent.
Meanwhile, Mr Mbadi defended the ongoing privatization of Kenya Pipeline Corporation (KPC), arguing that similar initiatives in the past had transformed the companies for the better.
“The government under President Moi and Mwai Kibaki disposed of its stake at Safaricom. The company is now one of the best in the region. The Kibaki government also sold its stake in the Kenya Commercial Bank and there were no complaints. We are seeking up to Sh350 billion to finance mega infrastructure projects,” he said.
The CS said the National Treasury was tightening the noose on corruption loopholes to optimize utilisation of public resources.
dmuchui@ke.nationmedia.com
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