The Kenya Bankers Association (KBA) has urged the Government and the National Assembly to reconsider the proposed imposition of a 16% Value Added Tax (VAT) on financial transactions outlined in the Finance Bill, 2024.
“It has long been established that while VAT applies to payments for goods and services, bank charges are a cost recovery rather than a direct payment for goods or services. Therefore, bank charges have not traditionally been considered VATable,” stated Raimond Molenje, Acting CEO of the Kenya Bankers Association.
Finance Bill 2024 VAT on financial and insurance services
The Finance Bill 2024 proposes VAT on various financial services including;
- Issuance of credit and debit cards;
- Telegraphic money transfer services;
- Foreign exchange transactions, including the supply of foreign drafts and international
money orders; - Cheque handling, processing, clearing and settlement, including special clearance or
cancellation or cancellation of cheques; - Issuance of securities for money, including bills of exchange, promissory notes, money
and postal orders; - The assignment of a debt for consideration;
- The provision of financial services on behalf of another on a commission basis;
- Management and related insurance consultancy services;
- Actuarial services; and
- Services of insurance assessors and loss adjusters
“The increased cost of banking to customers will hinder financial inclusion efforts, particularly affecting low-income individuals and small businesses. Combined with Excise Duty, the total taxation on financial services would rise to 40% from the current 15% (excise duty only), significantly impacting affordability and accessibility.”
Regarding foreign exchange transactions, the proposed VAT will widen the margin charged on FX transactions. This could pose risks to economic growth by taxing export proceeds and hindering the competitiveness of Kenyan products, potentially deterring foreign investments, reversing the recovery of the tourism industry, and impacting foreign currency reserves and the stability of the Kenya shilling. The VAT application on FX transactions could also lead to increased costs, including fuel prices, reversing efforts to stabilize the cost of living.
“Finance Bill 2024 introduces both Tobin Tax and Robinhood Tax through the removal of VAT exemptions for banking transactions. This will increase the cost of basic banking services, raise the cost of credit, and potentially drive transactions to the black market. Kenya has been a leader in financial inclusion globally; an unnecessary tax on banking transactions will make the country less competitive. Large FX transactions may be offshored,” stated Kenya Bankers Association Chairman John Gachora, CEO of NCBA Bank, on X (formerly Twitter).
“If the proposals are adopted, they are expected to increase the cost of various financial and insurance services, potentially limiting access to these services for ordinary Kenyans,” noted KPMG in a report.
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