The Kenyan banking sector has contributed Ksh. 207 billion in taxes in Kenya in the financials years 2017 and 2018.
This was revealed in a report prepared by PwC Kenya in partnership with Kenya Bankers Association (KBA) titled the Total Tax Contribution of the Kenya Banking Sector.
The report outlines the tax contribution of the banking sector in forms of taxes borne by the banks such as corporation tax and irrecoverable VAT, and taxes collected as an agent of government such as PAYE, excise duty and withholding tax.
The report covers the 2017 and 2018 financial years and involved 38 banks and microfinance institutions which made a total tax contribution of Ksh. 108.1 billion and Ksh. 99 billion in 2017 and 2018 respectively. This demonstrated the critical contribution of the industry to taxes.
Titus Mukora, Tax Partner at PwC Kenya, said the purpose of the study was to quantify the tax contributions and draw connections between taxes and economic developments such as the interest rate caps and the adoption of technology by banks.
“Our analysis uses the Total Tax Contribution framework, where tax contribution is segmented into taxes borne and taxes collected. Taxes borne are those which are direct costs to a business such as corporation tax and irrecoverable VAT. Taxes collected are those that a business collects from taxpayers on behalf of the government such as PAYE and withholding tax,” said Mr. Mukora.
According to the report, in the two years, banks contributed a total of Ksh. 207 billion in taxes. However, there was a decline in tax contribution from 2017 to 2018 attributable to reduction in taxes borne by banks, and in particular a reduction of corporation tax paid. This was a result of low profits reported in 2017 relative to 2016.
The result was large corporate tax over-payments in 2017 were utilised against 2018 corporate tax due leading to a decline in corporate taxes paid in 2018.
The decline in taxes arising from declined profitability in 2017 is reflected in the reported year on year decline of the industry’s net income for the period 2016 to 2017. This is also reflected in the decline in growth of net assets in the sector in 2017 of 6.8% down from an 11% growth in the previous year.
The report shows that taxes collected grew by 10% from 2017 to 2018 (Ksh. 46.1 billion to Ksh. 50.7 billion). This growth was largely due to a 40% increase in excise duty which resulted from an increase in excisable fees and commissions charged by banks to customers as well as an increase in the excise duty rate charged by the sector from 10% to 20% within 2018.
The report further shows that, for every Ksh. 4 of corporation tax paid in Kenya, approximately Ksh. 1 was paid by the banking sector. This translates to 26% of the corporate taxes collected by the Kenya Revenue Authority (KRA).