This archive report was first published on 16 October 2019.
On October 16, 2019, PwC Kenya in partnership with the Kenya Bankers Association (KBA) released a report on the total tax contribution of Kenya's banking sector, providing insight into the tax contributions of the sector.
The report, which covers the 2017 and 2018 financial years, outlines the contribution by banks through corporation tax and irrecoverable VAT, as well as taxes collected as an agent of government such as PAYE, excise duty, and withholding tax.
According to the report, the 38 banks and microfinance institutions that participated made a total tax contribution of Ksh108.1 billion and Ksh99 billion in 2017 and 2018 respectively.
Mr. Titus Mukora, Tax Partner at PwC Kenya, explained that the study uses the Total Tax Contribution framework, which segments tax contribution into taxes borne and taxes collected.
Taxes borne are direct costs to a business, such as corporation tax and irrecoverable VAT, while taxes collected are those that a business collects from taxpayers on behalf of the government, such as PAYE and withholding tax.
Corporation Tax ¶
The report shows that banks contributed a total of Ksh207.2 billion in taxes over the two years, with a decline in tax contribution from 2017 to 2018 due to a reduction in taxes borne by banks, particularly a reduction in corporation tax paid.
The decline in taxes was attributed to low profits reported in 2017 relative to 2016, which was a result of the full year of interest rate caps and a prolonged electioneering period.
As a result, large corporate tax over-payments in 2017 were utilized against 2018 corporate tax due, leading to a decline in corporate taxes paid in 2018.
For every Ksh4 of corporation tax paid in Kenya, approximately Ksh1 was paid by the banking sector, according to the report.
The report also shows that taxes collected grew by 10% from 2017 to 2018, 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.
Banks Lead Compliance ¶
Kenya Bankers Association (KBA) CEO Dr. Habil Olaka stated that PwC's findings underscored the KBA's internal review, which had understated the industry's tax contribution.
Dr. Olaka emphasized that banks operate in a highly regulated environment, leading to high levels of transparency and, consequently, high levels of tax compliance and contribution to the national budget.
