Tax Banking Sector
KRA Commissioner of Investigations and Enforcement, Dr Edward Karanja (left), Pricewaterhouse Coopers Associate Director – Tax and Transfer Pricing, Alice Muriithi (Center) and Kenya Bankers Association CEO Dr Habil Olaka (right) display copies of the 2021 Total Tax Contribution Study of the Kenya Banking Sector Report.

Banks in Kenya paid Kes32.85 to the taxman for every Kes100 profit made in the period ended December 2021.

A new survey by audit firm PwC Kenya in partnership with the Kenya Bankers Association (KBA) shows that 38 banks who participated in this study (representing 97 percent of the market share) made a total tax contribution of Kes129.52 billion in 2021, an increase of 24 percent from the Kes104.8 billion recorded in 2020.

The 2021 contribution is equivalent to 6.82 percent of the total tax receipts in Kenya compared to the 6.9 percent recorded two years ago.

“2021 was a year of economic recovery coming on the backdrop of greater access to vaccines and reopening of all sectors of the economy, especially the services industry,” Peter Ngahu, PwC Country and Regional Senior Partner, Eastern Africa noted.

Mr Ngahu added that a number of key economic metrics show that last year, the country made a notable recovery from the pandemic hit.

“These indicators include a 47.67 percent reduction in loan loss provisions in 2021 relative to 2020 as well as an 11 percent growth in total deposits of the sector,” he said.

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According to survey findings, banks in Kenya paid a total of Kes50.69 billion in corporate taxes last year, representing 26 percent of the corporate taxes collected by the Kenya Revenue Authority.

KBA Chief Executive Officer Dr Habil Olaka lauded the strides made by the industry in regard to exceeding their total tax contribution to the country in comparison to previous years.

Corporate tax collection from banks surged by 24 percent compared to the Kes41.28 billion reported in 2020.

This increase was largely driven by an increase in the profit before tax of the banks of 85.17 percent in the period ended December 2021, the Total Tax Contribution (“TTC”) study of the Kenya Banking Sector noted.

Increased economic activity in the period under focus was also reflected in the country’s GDP statistics, which showed growth from -0.3 percent in 2020 to 7.5 percent in 2021.

The increase in corporation tax can also be partly explained by the increase in the tax rate from 25 percent in 2020 to 30 percent in 2021 following the lifting of government relief measures meant to cushion companies during the height of the Covid-19 pandemic.

The study further noted a 58 percent year-on-year increase in excise duty collected by the banking sector.

This was the most significant year-on-year growth noted in the study, largely attributed to the 2021 economic recovery that provided a broader volume and value of transactions subject to excise duty.

“The tax policy of the banking sector must be designed carefully to ensure the sector continues to thrive and effectively play its role in facilitating other sectors through the advancement of credit,” commented Alice Muriithi, Associate Director at PwC Kenya and the lead technical advisor on the study.

Further, input VAT expensed by banks (irrecoverable VAT) went down by 16.20 percent last year compared to 2020.

“This is the only tax category analysed in this report that reported a reduction in 2021 relative to 2020 thus pointing towards a sector that is reaping the benefits of digitalisation investments,” said Ms Muriithi.

Across the industry, the rising uptake of digital banking and investment in technology has drastically cut dependence on banking halls, compelling lenders to close some branches and go slow on the deployment of ATMs.

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