In a dramatic policy showdown, President William Ruto has overridden Treasury warnings and approved a Sh40 billion tax relief package for low-income Kenyan workers, prioritizing citizen welfare over fiscal conservatism. The decision marks a significant political and economic gamble that could reshape Kenya’s tax landscape.
The confrontation between the President and Treasury Cabinet Secretary John Mbadi came to a head when Mbadi warned that eliminating PAYE for workers earning up to Sh30,000 would create a massive budget shortfall. “The Treasury came back and said, ‘Oh, Mr. President, you know this is going to be very big. You know it’s going to cost us Sh40 billion in this budget,’” Ruto recounted during the National Prayer Breakfast.
Despite the Treasury’s concerns about revenue loss and budget balancing, Ruto made the executive decision to proceed. “I told them, ‘Let’s do it. Let’s do it,’” he declared, signaling his determination to provide immediate relief to struggling Kenyans.
Treasury CS Mbadi had previously stated that the PAYE relief did not feature in the proposed Finance Bill 2026 because his department was still running simulations and assessing the overall economic impact. “We needed to check how different factors are happening at the same time, and we are also assessing the overall effect on the economy,” Mbadi explained to the media.
The Sh40 billion price tag represents a substantial portion of Kenya’s revenue, raising questions about how the government will compensate for the loss. The Treasury plans to widen the personal income tax base by improving compliance and bringing more high-income earners into the tax net. However, critics question whether these measures will be sufficient to offset such a significant revenue reduction.
The tax relief package includes complete PAYE exemption for workers earning up to Sh30,000 monthly and reducing the 30% tax bracket to 25% for middle-income earners. Workers will see net pay increases ranging from Sh731 to over Sh2,000 monthly, providing immediate financial relief to millions of households.
Political analysts suggest the timing of this decision, coming ahead of the 2027 elections, is strategic. By providing tangible financial benefits to low-income voters, Ruto may be building political capital while demonstrating responsiveness to citizen concerns about the high cost of living.
The move also highlights the tension between fiscal responsibility and political expediency—a balancing act that governments worldwide struggle with. Whether this gamble pays off economically and politically remains to be seen.
Read the full story at Nairobi Wire for complete details on this developing story.
For those interested in understanding economic policy and government decision-making, consider reading “The Undercover Economist” by Tim Harford or “Poor Economics” by Abhijit Banerjee and Esther Duflo.