Kenya’s banking sector defied turbulence witnessed last year to pump more money to the government through its tax agency, The Kenya Revenue Authority (KRA).
The challenging environment in the year 2022 emanated from increased inflation, prolonged drought, depreciation of Kenya Shillings against major currencies, geopolitical pressure and election related uncertainties affection smooth business across the economy.
However, the banking sector managed to hand KRA Sh181.27 billion, the highest amount the government has ever collected from banks since 2019.
Corporate Tax (CT) was the biggest driver to the significant increase in the 2022 total tax contribution. Corporate Tax increased from Sh49.8 billion in 2021 to Sh87.71 billion in 2022, a 77.26 per cent increase.
During last year, withholding tax collected by banking sector increased toSh37.31 billion and the contribution from Pay As You Earn amounted to Sh37.23 billion.
The total tax contribution of 39 banks participating in the PwC report on Total Tax Contribution of the Kenya Banking Sector 2022 represents 8.93 per cent of all government receipts compared to 6.82 per cent in 2021.
“This underlines the government’s continued reliance on the banking sector to not only spur economic growth but also pay its own taxes,” said Alice Muriithi Partner, Tax and Transfer Pricing PwC Kenya.
“These tax contributions have a far-reaching impact on the development of critical infrastructure, social welfare programs, and the overall improvement of quality of life for citizens,” noted Habil Olaka, the Chef Executive Officer, Kenya Bankers Association.
“It is crucial for the tax policy framework of the sector to be designed in a way that facilitates sustainable growth,” said Alice.
The latest edition of the Kenya Banking Sector total tax contribution documents trends in tax contribution since 2018. The Kenya Revenue Authority collected Sh120.12 billion from banks in 2019, Sh104.83 billion in 2020, Sh129.50 billion in 2021 and Sh99.0 billion in 2018.
In 2020, the total tax contribution of the study participants declined by 16 per cent as a result of GDP contraction in the first year of Covid-19 pandemic. This was aligned to the decline in profitability of banks by 31 per cent, increased loans write-offs and provisions as well as the government issuance of tax reliefs through reduced tax rates on Corporate tax, PAYE, and VAT.
In 2021, the Total tax contribution relative to 2020 increased by 23.59 per cent. The increase driven by a substantial jump in corporate tax, excise duty collected and withholding tax collected-all on account of the economic recovery witnessed in 2021 as a result of reopening of all sectors of the economy on the backdrop of greater vaccine access.
The growth in 2022 is also driven by 60.13 per cent increase in Excise Duty as a result of increase in fees and commissions.
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