The government is weighing reductions in both Value Added Tax (VAT) and Income Tax as part of broader reforms aimed at stimulating economic growth and easing pressure on households.
Treasury Principal Secretary Chris Kiptoo revealed the plans on Thursday, January 29, while addressing lawmakers during a legislative retreat in Naivasha.
His briefing focused on the state of the economy, the government’s development priorities, and the direction of tax policy reforms over the medium term.
According to Kiptoo, the Treasury is guided by a Medium-Term Revenue Strategy and the National Tax Policy, both of which aim to simplify Kenya’s tax system, eliminate inefficiencies, and make taxation more predictable for businesses and individuals.
“If the fiscal environment allows, we want to create room to adjust key tax rates downward,” Kiptoo said, noting that VAT and income tax are among the areas under active review.
Currently, VAT in Kenya stands at 16 per cent, one of the most sensitive taxes for consumers because it directly affects the cost of goods and services.
The Treasury is considering lowering the rate to 15 per cent, a move that would slightly reduce prices and improve household purchasing power.
For example, a product retailing at Ksh1,000 currently costs Ksh1,160 after VAT. With a reduced VAT rate of 15 per cent, the price would drop to Ksh1,150.
While the difference may appear small on individual items, the savings become more significant for households with high monthly consumption.
A family spending around Ksh50,000 per month on VAT-applicable goods would save approximately Ksh500 every month, translating to Ksh6,000 annually.
In addition to VAT, the Treasury is also examining possible adjustments to income tax rates. Kiptoo explained that any changes would depend on available fiscal space and whether economic growth can compensate for reduced tax collections.
An average Kenyan earning Ksh100,000 per month currently pays about Ksh30,000 in income tax and statutory deductions.
A modest reduction in income tax could lower this by roughly Ksh3,000 per month, leaving workers with more disposable income for household needs, savings, or investment.
When combined, VAT and income tax cuts could potentially increase a household’s take-home income by around Ksh3,500 per month, a welcome boost at a time when Kenyans are grappling with high living costs, rising food prices, and increased utility bills.
However, Kiptoo cautioned that tax reductions come with risks.
“The challenge is that when you adjust taxes downward without a corresponding expansion of the economy, you create pressure on government revenue,” he said.
“We must ensure that any relief measures are sustainable and do not undermine essential public services.”
The Treasury is expected to finalise its proposals for the 2026 Finance Bill in the coming days. The recommendations will be submitted to the Cabinet alongside the Budget Policy Statement (BPS) before being tabled in Parliament for debate and approval during the next budget cycle.
The discussion on tax cuts comes amid growing public pressure on the government to review Kenya’s taxation framework. Many Kenyans have raised concerns over deductions such as Pay As You Earn (PAYE), the housing levy, Social Health Authority (SHA) contributions, and other mandatory charges that have significantly reduced net pay.
Political leaders have also weighed in on the debate. On Wednesday, former Deputy Chief of Staff and presidential aspirant Eliud Owalo promised sweeping tax reforms if elected, including cutting VAT to 10 per cent and lowering income tax to 20 per cent.
He argued that Kenya’s current tax structure has eroded household incomes and discouraged productivity.
Owalo said salaried workers and businesses are bearing a disproportionate tax burden at a time when economic growth remains sluggish.
According to him, excessive taxation has constrained consumer spending and reduced incentives for investment.
The private sector has echoed similar concerns. In December last year, the Kenya Bankers Association (KBA) proposed a restructuring of PAYE tax bands to make the system more progressive and fair.
Under KBA’s proposal, income below Ksh30,000 would be exempt from PAYE, up from the current threshold of Ksh24,000. Earnings between Ksh30,001 and Ksh50,000 would be taxed at 15 per cent, income between Ksh50,001 and Ksh100,000 at 20 per cent, salaries between Ksh100,001 and Ksh400,000 at 25 per cent, and income above Ksh400,000 at 30 per cent.
The Treasury has not committed to adopting the proposal but acknowledged that stakeholder input will play a role in shaping the final tax framework.
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