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Impact of increased payroll taxes in 2024 to Kenyan households

Fridah Karei by Fridah Karei
December 4, 2024
in News
Reading Time: 2 mins read

In 2024, the Kenyan government decided to increase payroll taxes, including the increase in the National Social Security Fund (NSSF) contributions, raising the Tier I and II limits to KES 7,000 and 36,000 from KES 6,000 and KES 18,000 respectively  and the restructuring of Pay As You Earn (PAYE) taxes, has affected Kenyans negatively. Despite the government’s justification for these reforms being the need to improve its income and improve welfare, their impact on ordinary Kenyans is significant, especially for low and middle-income households.

The increase in NSSF contributions reduces the take-home pay for Kenyans and thus less disposable income. Consequently, Kenyans are finding it difficult to afford basic needs and maintain their living standards. With the increased inflation rates and the cost of basic goods rising, additional tax burden puts more pressure on Kenyans.

The government’s justification that PAYE restructuring with higher earning individuals paying higher income tax rates is to promote fairness, reduce inequality and ensure public goods and services are equally distributed. However, middle-income households also are experiencing a high tax burden since this restructuring was effected.  The middle-income households are at a disadvantage because they make too much to qualify for tax relief but they do not make enough to take the deductions in their payroll without affecting their living standards. Additional taxes on middle-income households reduces their purchasing power and their ability to afford basic needs.

Businesses may also reduce costs by reducing hiring and hiking commodity prices. This will be an action to combat increased employer contributions. As a result, increased payroll taxes and contributions could lead to less employment opportunities. This further affects income ability among households.

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The increase in payroll taxes and contributions as a means of the government to strengthen its fiscal health, it reduces household’s purchasing power and causes increased financial strain. This means reduced living standards for most Kenyans. It is therefore important for the government to balance its long-term fiscal goals with the needs of its citizens.

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