Banks contribute one in every four shillings of corporate tax paid in Kenya according to a recent report by PricewaterhouseCoopers (PwC) and the Kenya Bankers Association (KBA).
The report, dubbed ‘Total Tax Contribution of the Kenya Banking sector’, notes that banks contributed 26% of Kenya’s corporate taxes in 2017 and 2018.
Despite the significant contribution to government revenue, the banking sector does not receive any tax incentives, like other sectors such as manufacturing.
According to Titus Mukora, a director of Taxes at PwC, banks play a crucial role in tax collection. The lending institutions contributed a total of Ksh 207.2 Billion in taxes in the last two years, Ksh 108.1 Billion in 2017 and KSh 99.0 Billion in 2018.
“The industry’s high contribution to corporate taxes can also be attributed to the fact that unlike other industries such as the manufacturing sector that enjoy a raft of tax incentives, there are hardly any corporate tax incentives for banks.” reads the report.
Apart from the lack of incentives, the banking sector also succumbs to bad debt expenses, as a result of accounting guidelines in IFRS 9. Furthermore, 84% of banks argue that misalignment in accounting and tax definitions strained the implementation of the tax framework.
The Kenya Bankers Association has called for sustainable tax frameworks that allow the achievement of government objectives and private sector growth.
“When banks do good, communities do better. We, therefore, need to find a tax policy informed by data to grow the banking and private sector.” KBA CEO Habil Olaka said during the launch of the report in Nairobi.
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While KBA hints at the need for tax incentives for banks, KRA has a contrary opinion on the matter.
Speaking at the unveiling of the report, KRA Assistant Commissioner Caxton Masudi argued that banks experience incentives as they do not pay output VAT.
Nevertheless, banks play a significant role in the Kenyan Tax system, such as promoting compliance among other taxpayers. Besides, automation in the sector has fastened the flow of transactions and information key to KRA’s action.
“Banks are at the forefront of collecting taxes and remitting to the treasury,” Caxton added.
