Tax collections from workers’ earnings have surpassed the National Treasury’s target for the first time since the 2021/22 financial year, ending three consecutive years of underperformance.
Pay-As-You-Earn (PAYE) receipts rose 7.01 percent to Sh599.8 billion in the year ended June 2026, the Treasury says in a fresh report, exceeding the government’s Sh592.1 billion target by Sh7.7 billion.
The performance marks a turnaround after PAYE collections fell short of the target by Sh16.2 billion in the 2022/23 financial year, Sh25.8 billion in 2023/24, and Sh6.1 billion in the year ending June 2025.
The latest performance also reflects a shift by the Treasury toward more conservative revenue forecasts after repeated failures to meet ambitious PAYE targets.
For the year ended June, Treasury raised its PAYE target by a relatively modest 4.5 percent, compared with the 7.01 percent growth eventually recorded by collections.
KRA Commissioner-General Adan Mohammed said the improvement was encouraging, although PAYE growth remained below the average 8.5 percent recorded in 2022/23 and 2023/24.
“While this [growth in PAYE] is an improvement compared to a growth recorded in the financial year 2024/25, it is still lower than the average growth of 8.5 percent recorded in the financial years 2022/23-2023/24,” Mr Mohammed said in the latest annual statement on revenue performance, citing data from the 2026 Economic Survey.
“This performance is affected by the shrinking contribution of formal sector employment to overall employment.”
The share of formal-sector employment fell from 15.7 percent of total employment in 2022 to 15.5 percent in 2024 and 15.3 percent last year.
The decline limits the government’s ability to generate large increases in PAYE because most new jobs are being created outside the formal wage economy.
Formal wage employment nevertheless increased by 101,200 jobs in 2025 to 3.315 million workers, up from 3.214 million a year earlier, the Kenya National Bureau of Statistics wrote in the 2026 Economic Survey.
The increase was stronger than the 75,500 formal jobs created in 2024, indicating some recovery in formal hiring after a period of weaker employment growth.
Formal employment had expanded by 122,900 jobs in 2023 and 109,300 in 2022, before growth slowed to 75,500 new positions in 2024.
Analysis of the official data shows the formal sector has yet to fully recover the jobs lost during the pandemic, when the economy shed 185,800 formal positions in 2020.
The latest PAYE increase, therefore, reflects more than new formal jobs, with higher taxable earnings and improved compliance likely contributing to stronger collections.
The informal economy remains the dominant source of new employment, limiting the expansion of the PAYE tax base.
KNBS data shows the informal sector created 716,800 jobs in 2025, more than seven times the 101,200 posts added through formal wage employment.
The data suggests that most Kenyans entering employment do not automatically join the pool of workers whose salaries are directly taxed through PAYE.
PAYE collections jumped 27.3 percent in 2021/22 to Sh462.4 billion before growth slowed to seven percent in 2022/23 and 12.1 percent in 2023/24.
Growth then almost stalled in 2024/25, increasing by a measly 1.05 percent to Sh560.5 billion before recovering to seven percent in the latest financial year to June.
The latest increase generated an additional Sh39.3 billion in PAYE revenue, giving Treasury a larger contribution from workers as it faces pressure to raise domestic collections.
Treasury raised its PAYE target by 26.1 percent in 2021/22, followed by increases of 12.3 percent and 13.6 percent in the next two financial years.
Those targets proved difficult to achieve, culminating in the Sh25.8 billion shortfall in 2023/24, the largest during the period.
Treasury then cut its PAYE target by 2.4 percent in 2024/25 to Sh566.6 billion, but collections still fell short despite the lower expectation.
For 2025/26, the government increased the target by only 4.5 percent to Sh592.1 billion, well below the seven percent growth eventually achieved.
The turnaround against target represents a Sh33.5 billion improvement from 2023/24, when PAYE collections were Sh25.8 billion below the government’s forecast.
