Kenya's Pay-As-You-Earn (PAYE) tax collections have outperformed the National Treasury's target for the first time since the 2021/22 fiscal year, signaling a positive shift after three years of shortfalls.

According to the Treasury's latest report, PAYE revenue grew by 7.01 percent to reach Sh599.8 billion in the year ending June 2026. This surpassed the government's target of Sh592.1 billion by Sh7.7 billion, marking a significant recovery after consecutive years of missed targets.

Historical Performance and Targets

  • In 2022/23, PAYE collections fell short by Sh16.2 billion.
  • The gap widened to Sh25.8 billion in 2023/24, the largest deficit in recent years.
  • In 2024/25, collections missed the target by Sh6.1 billion despite a reduced target.

The Treasury adopted more cautious revenue projections following repeated overestimations. For 2025/26, the PAYE target was raised modestly by 4.5 percent, yet actual collections grew by over 7 percent.

Factors Influencing PAYE Growth

KRA Commissioner-General Adan Mohammed described the improvement as encouraging but noted that PAYE growth remains below the 8.5 percent average recorded in 2022/23 and 2023/24. He attributed this partly to a declining share of formal sector employment within total employment.

  • Formal sector employment decreased from 15.7% in 2022 to 15.3% in 2025.
  • Despite this, formal wage jobs increased by 101,200 in 2025 to 3.315 million workers, indicating some recovery in formal hiring.
  • However, the formal sector has not fully regained the 185,800 jobs lost during the 2020 pandemic downturn.
  • The informal sector remains the main source of new jobs, adding 716,800 positions in 2025, over seven times formal employment growth.

This dynamic limits expansion of the PAYE tax base, as most new workers are not subject to direct salary taxation.

Implications for Revenue and Economy

The improved PAYE collections reflect not only job creation but also higher taxable incomes and better compliance. The additional Sh7.7 billion collected over target contributes to the Treasury’s efforts to boost domestic revenue amid fiscal pressures.

While growth in PAYE revenue has fluctuated in recent years—with sharp rises in 2021/22 and slower gains thereafter—the latest results suggest cautious optimism for Kenya’s formal employment and tax compliance outlook.