Kenya: Banking Sector Tax Contribution Hits 5 Year High in 2021

The Kenyan banking sector registered the highest tax contribution in five years, a new survey shows.

The survey which was prepared by Price Waterhouse Coopers Limited in conjunction with Kenya Bankers Association noted that banks paid a total of Sh129.52 billion to KRA in 2021 a 24 per cent increase from Sh104.8 billion in 2020.

Speaking during the launch of the study, KBA boss Habil Olaka commended the industry for the great efforts it had made by raising more than the amount of total tax contribution it had raised in the previous years.

The 2021 contribution was 6.82 per cent of the total tax receipts in Kenya compared to 6.9 per cent in 2020.

Alice Muriithi, Associate Director at PwC Kenya pointed to the need of redesigning the banking sector to ensure it performs its role of providing credit to the other sectors effectively.

According to the findings, banks paid Sh50.69 billion in corporate taxes representing 26 per cent of corporate taxes collected in the country in 2021, a 24 per cent increase compared to Sh41.28 billion that was collected in 2020.

The improvement was attributed to an increase in the profit of the banks before tax was deducted and also an increase in economic activities in the country.

The banking sector also recorded a 58 percent year-on-year increase in excise duty, the most important year-on-year growth seen by the study.

The significant growth was attributed to the economic recovery in the country which was witnessed after the reopening of the economy.

However, the sector experienced a 16.20 per cent fall in irrecoverable Value Added Tax which was caused by increased utilization of digital banking services.

This was the only sector that recorded a decline compared to the year 2020, as banks were forced to close some of their branches and ATMs as people were no longer relying on physical banking services.

“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,” noted Muriithi.