Kenyan Banks Paid Ksh 129.52 Billion In Taxes In 2021

The Total Tax Contribution (TTC) study shows that the 38 banks (representing 97 percent of the market share) made a total tax contribution of 129.52 billion shillings in 2021.

The tax contributions for 2021 mark an increase of 24 percent from the 104.8 billion shillings in 2020. The 2021 contribution is 6.82 percent of the total tax receipts in Kenya compared to 6.9 percent in 2020.

“This 6.82 percent contribution of the banking sector to the total tax collections underscores the significant contribution of the banking sector to Kenya’s tax revenues.

Consequently, the tax policy of the banking sector must be designed carefully to ensure the sector continues to thrive and effectively play its role in facilitating other sectors through the advancement of credit,” said Alice Muriithi, Associate Director at PwC Kenya.

The study also uncovered that banks paid 50.69 billion shillings in corporate taxes in 2021 which represents 26 percent of the corporate taxes collected in Kenya. This is a 24 percent increase compared to the 41.28 billion shillings collected in 2020.

This increase was largely driven by an increase in the profit before tax of the banks of 85.17 percent in 2021 relative to 2020.

The PBT increase is aligned to increased economic activity in 2021 as reflected by the GDP growth which grew from -0.3 percent in 2020 to 7.5 percent in 2021.

The increase in corporation tax can also be partly explained by the increase in the corporation tax rate from 25 percent in 2020 to 30 percent in 2021.

The study also revealed that the measure of the cost of all taxes borne relative to profitability was 32.85 percent. This means that for every 100 shillings of profits, banks paid 32.85 shillings to the government as taxes.

The study further noted a 58 percent year-on-year increase in excise duty collected by the banking sector. This was the most significant year-on-year growth noted in the study, largely attributed to the 2021 economic recovery that provided a broader volume and value of transactions subject to excise duty.

Further, input VAT expensed by banks (irrecoverable VAT) was reduced by 16.20 percent in 2021 compared to 2020. Increased uptake of digital banking and investment in technology has reduced reliance on banking halls compelling banks to close some branches and reduce their ATMs.

“This is the only tax category analyzed in this report that reported a reduction in 2021 relative to 2020 thus pointing towards a sector that is reaping the benefits of digitalization investments,” said Alice Muriithi.

The study offers an opportunity for the tax contribution of the banking sector to be quantified and analyzed so that policymakers can assess whether the operating environment is supportive of the sector.