Nairobi — Treasury Cabinet Secretary John Mbadi has disclosed that plans to reduce Pay As You Earn (PAYE) tax were put on hold after the Kenya Revenue Authority (KRA) missed its revenue collection targets for the 2023/2024 financial year.

Appearing before the Senate, Mbadi said the government had conducted simulations aimed at easing the PAYE burden to boost disposable incomes, but the shortfall in tax collections forced the Treasury to shelve the proposal.

"We did some simulations on how to reduce the Pay As You Earn (PAYE)," he told Senators. "What stopped us from implementing it in this Finance Bill was the failure by KRA to meet its revenue targets."

KRA had revised its revenue collection target to Sh2.537 trillion for the fiscal year ending June 30, 2024, down from the original projection of Sh2.787 trillion. However, by the close of the year, the authority had raised Sh2.407 trillion--Sh130 billion below the revised goal--representing a 95.5 percent achievement.

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Despite the underperformance, the figure marked an 11.1 percent increase from the previous year's collection of Sh2.166 trillion.

The Treasury attributed the shortfall to a combination of macroeconomic pressures, including the weakening of the Kenyan shilling against the US dollar, elevated bank lending rates, and ongoing global supply chain disruptions driven by international conflicts.

Mbadi expressed optimism that ongoing reforms at KRA--particularly in automation and systems modernisation--would enhance efficiency and pave the way for a PAYE reduction in future budgets.

The proposed tax cut was expected to offer relief to salaried Kenyans grappling with rising living costs. However, the government now appears focused on strengthening its revenue collection systems before adjusting income taxes.

Mbadi assured that the tax relief proposal will be revisited and incorporated in the next Finance Bill.