The Kenya banking sector contributed 7.5 percent of the total tax collected between 2019 and 2020 amounting to Ksh.224.9 billion.
This means the banking sector accounted for 27 percent of all corporate tax paid in Kenya.
The findings are based on a report by PricewaterhouseCoopers (PwC) which engaged 32 banks in the country on behalf of the Kenya Bakers Association (KBA).
Total tax contributed dropped 12 percent to Ksh.105 billion in 2020 from Ksh.120 billion in 2019 against the backdrop of coronavirus pandemic.
“Specifically reduction of the corporate tax rate from 30 percent to 25 percent, reduction of the top PAYE rate from 30 percent to 25 percent and the reduction of Value Added Tax rate from 16 percent to 14 percent,” reads the report.
The report indicates that Corporate tax contributed the highest at 42 percent followed by Pay As You Earn (PAYE) and then the Withholding Tax collected at 17 percent.
KBA Chief Executive Officer Dr. Habil Olaka said the sector’s contribution is commendable given the challenging environment accessioned by the pandemic.
“As an industry, we recognise the important role the financial services sector plays in supporting economic growth. In this regard, we remain committed to sustaining efforts towards anchoring business recovery in the face of the COVID-19 disruption,’’ said Olaka.
“Considering a total population of 6 million registered taxpayers countrywide, this is indeed a very significant contribution,” said Alice Muriithi, Associate Director at PwC Kenya.
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Cumulative ratio of taxes borne to the profit of 32 banks surveyed during the period was 48.5 percent, representing the Total Tax Rate (TTR) of the participating banks.
“The taxman applies strict criteria in terms of which provisions can be tax deductible in determining taxable profits. In practice, there is misalignment between provisioning for accounting purposes and the deductibility of the same provisions for tax purposes, and this misalignment continues to drive up the effective tax rates for banks and particularly, the Total Tax Rate (TTR),” added Muriithi.
In the two years under review, the sector invested an estimated Ksh.1.6 billion compared to Kh. 1.3 billion in the 2017 and 2018 periods, anchoring on the sector’s prior commitment to the digitization journey well before the beginning of the pandemic.
This even as the sector’s provisioning for loan losses increased by 47.5 percent to Ksh.198.1 billion from Ksh.134.3 billion in 2019.
Loan loss accommodations absorbed 45.7 percent of Non-Performing Loans (NPL) compared to 40.2 percent in 2019 even as the industry restructured 54.2 percent of loans worth Ksh. 1.63 trillion.
The percentage of gross non-performing loans to gross loans rose to 14.1 percent by December 2020 compared to 12 percent in December 2019.
COVID-19 Effects
Upon the advent of the coronavirus pandemic in the country on March 13, 2020, the Central Bank of Kenya (CBK) moved in to outline a raft of measures to mitigate the effects of the pandemic on ordinary Kenya.
These measures included waiver of fees for money transfer between bank accounts and mobile phone wallets. This resulted in banks facing a 42.2 percent decline in excise duty collected by bans for the period under review.
However, despite the challenges, CBK 2020 MSME Survey report indicates lending to micro, small and medium-sized (MSME) enterprises increased by 42 percent in the period between 2017 and December 2020 to Ksh.638.3 billion up from Ksh.413.9 billion in December 2017.
Dr. Olaka challenged other sectors to take up the surveyor report challenge saying it is a measure of any sector’s contribution to the governance and social aspects of the economy.
