KBA CEO on Tax incentives
Kenya Bankers Association(KBA) CEO , Dr Habil Olaka during a past event

Between 2017 and 2018, Kenyan banks netted over two hundred billion shillings in taxes. But the subsidies that the taxman says it has offered them so far – have only been a far cry from the lenders’ expectations – so says Habil Olaka, Chief Executive of the Kenyan Bankers Association (KBA).

Mr. Olaka echoed the frustrations of the sector, saying that despite being the highest tax remitters compared to other sectors of the economy e.g. manufacturing and production; the banking sector rarely receives any tax incentives.

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At a time when banks have beefed up compliance, with some lenders hinting that they have achieved ‘Peek Compliance’, the KBA boss has called on regulators in this case; the Central Bank of Kenya and the Kenya Revenue authority to perhaps offer more supportive tax policies to banks.

“We must also be guarded against arbitrary tax policies like the Robin Hood taxes and drop of the hat taxation of the digital economy,” he said.

In the 2018 finance bill, for instance, CBK proposed that banks part with 0.05 Percent exercise duty for money transfers on amounts that exceed sh500,000 – a tax that KBA was heavily opposed to, claiming that it would severely derail the county’s capital markets and investment environments.  

These considerations, proposals and to an extent complains, are now contained in a PWC report dubbed the ‘Total Tax Contribution Report’ a first of its kind in the East African region.

The PWC report outlines the tax contribution of the banking sector in 2017 and 2018 , in the form of taxes borne by the banks e.g. corporation tax and irrecoverable VAT, and taxes collected as an agent of the government in the case of PAYE for employees, excise duty and withholding taxes.  

The report notes that there was a decline in banks’ total tax contribution from 2017 (Ksh 108 B) to 2018 (99 B) attributed to the first full year of the interest rate caps coupled with a prolonged electioneering period, meaning less profitability for banks.

“The result was a large corporate tax over-payments in 2017 were utilized against 2018 corporate tax due to a decline in corporate taxes paid in 2018,” the report says.

But despite less profitability in 2018, the taxman still made Sh 4.6 Billion more in taxes largely due to a forty percent increase in excise duty charged by banks.

Tax incentives

Between 2017 and 2018 a total of 43.5 percent of banks’ total operating profits were spent on taxes. These taxes were not solely based on profitability but also included categories such as irrecoverable VAT, a cost incurred during activities such as banks’ heavy investments in technology during the same period.

PWC and Kenya Bankers Association now argue that irrecoverable VAT is a Killjoy for the sector and may discourage digitization. Click here to read the full report.

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