World Bank Advises Kenya to Increase Income Tax Rate for Top Earners to 38 Per Cent

• The World Bank released its economic update on Kenya on Tuesday, highlighting recent financial developments in the country
• The Bretton Woods institution proposed that the existing 30% tax rate should be cut to 25% for those making between KSh 32,334 and KSh 166,667
• It recommended an increase in the income tax rate for high-income earners making over KSh 800,000 monthly from 35% to 38%

Japhet Ruto, a journalist at TUKO.co.ke, brings more than eight years of experience in finance, business, and technology, offering deep insights on economic trends in Kenya and globally.

The World Bank has urged Kenya to raise the top income tax rate to 38% for individuals earning over KSh 800,000, while easing the tax burden on middle and low-income earners to stimulate the formal economy.

In its Kenya economic update released on Tuesday, May 27, the lender proposes introducing a new tax bracket for high earners to offset the revenue shortfall from lowering taxes on monthly incomes below KSh 166,677.

This reform would expand the current five tax bands to six, eliminating the 30% tax rate.

Currently, those earning above KSh 500,000 monthly pay a 32.5% tax rate, while those above KSh 800,000 face a high rate of 35%.

How Kenyans' income has been affected

For the fifth consecutive year, wage increases have lagged behind inflation or cost-of-living measures, which has reduced workers' purchasing power and their standard of living.

Additional taxes and levies, such as the contentious Social Health Insurance Fund (SHIF) and the housing levy, have further reduced workers' disposable income.

The World Bank wants the existing 25% tax rate for those making between KSh 24,000 and KSh 32,333 to be lowered to 15%.

It further proposed that the existing 30% tax rate should be cut to 25% for those making between KSh 32,334 and KSh 166,667.

"The Public Finance Review (PFR) recommends revenue policies focused on enhancing the efficiency and equity of the tax system. It will promote formalisation and progressivity by reforming personal income tax (PIT) and strengthening the efficiency of income tax incentives and broadening the income tax base by rationalising tax exemptions in PIT and corporate income tax (CIT)," the World Bank stated.

How Kenyans will benefit from the World Bank's proposals

If the National Treasury adopts the World Bank's recommendations, low- and mid-income individuals would benefit.

The take-home salary of a Kenyan earning KSh 50,000 would increase by KSh 179.15 to KSh 39,208.30. Employees making KSh 100,000 would enjoy a KSh 3,788.15 increase.

The Bretton Woods institution noted that the gap between before-tax and after-tax incomes has disproportionately affected low-income people.

Its analysis revealed that low-paid Kenyans bear a disproportionately high tax burden relative to their wages, which discourages formal employment.

What is William Ruto's salary?

According to the Salaries and Remuneration Commission (SRC), the Kenyan president's gross monthly income is KSh 1.44 million.

In August 2023, the SRC published a notice in the national gazette outlining the pay and benefits for state officers in the national government's executive arm.

President William Ruto receives a basic salary of KSh 866,250, a house allowance of KSh 350,000, and a pay market adjustment of KSh 227,500.

Proofreading by Asher Omondi, copy editor at TUKO.co.ke.

Source: TUKO.co.ke