According to a report that was released by PwC Kenya in partnership with Kenya Bankers Association (KBA) on Total Tax Contribution of the Kenya Banking Sector, the banking sector contributed Ksh207.2 billion in taxes for the year ended 2017 and 2018.
The report covers the 2017 and 2018 financial years and involved 38 banks and microfinance institutions which made a total tax contribution of Ksh108.1 billion and Ksh99 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 Ksh207.2 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 reduction in 2017 profits corresponds with the full year of interest rate cap coupled with a prolonged electioneering period,” the report states.
Kenya Bankers Association (KBA) CEO Dr. Habil Olaka while speaking during the launch said they were pleased that PwC has underscored their findings from KBA’s internal review. He said KBA’s shared value report has understated the industry’s tax contribution, and PwC has facilitated in providing an even clearer picture in terms of how banks lead in the area of tax compliance and contribution to the national budget.
“Banks operate in a highly regulated environment and this has led to very high levels of transparency. When transparency levels are elevated, inevitably the levels of tax compliance will be very high and the relative and absolute quantum of tax paid to the Government is enhanced. We, as an Association, are proud to be at the forefront of tax transparency and compliance in the corporate sector,” said Dr. Olaka.
In 2018, the financial services sector’s contribution to GDP growth ranged from 0.1% to 0.2%. Having in mind that the sector is not a significant driver of GDP growth, the high corporate tax contribution is also an indication of high levels of regulation and compliance in the industry.
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