The Banking Sector Contributed Billions In Corporation Tax In The Last Two Years
For every Ksh 4 of corporation tax paid in Kenya, approximately Ksh1 was paid by the banking sector. Banks contributed to Ksh 207.2 billion in taxes in the 2017 and 2018 financial year. In a report by Price Waterhouse Cooper (PWC) Kenya outlines the tax contribution of the banking sector in forms of taxes borne by the banks such as corporation tax and irrecoverable VAT and taxes collected as an agent of government such as PAYE, excise duty and withholding tax.
38 banks and microfinance institutions made a total tax contribution of Ksh 108.1 billion and Ksh99 billion in 2017 and 2018 respectively. In the report meant to quantify the tax contributions and draw connections between taxes and interest rate caps and the adoption of technology by the financial institutions. The analysis by PWC tried to explain the Total Tax Contribution framework where the contribution to the taxman is segmented into tax borne and taxes collected. Tax borne refers to direct costs to a business such as corporation tax and irrecoverable VAT. Taxes collected are those that a business collects from taxpayers on behalf of the government such as PAYE and withholding tax.
From 2017 to 2018, there was a decline in taxes borne in particular corporation tax paid, owing to the electioneering year. The result was large corporate tax over-payments in 2017 were utilized against the 2018 corporate tax due leading to a decline in corporate taxes paid in 2018. The report shows that taxes collected grew by 10% from 2017 to 2018 (Ksh46.1 billion to Ksh50.7 billion). This growth was largely due to a 40% increase in excise duty which resulted from an increase in excisable fees and commissions charged by banks to customers as well as an increase in the excise duty rate charged by the sector from 10% to 20% within 2018.
According to the Kenya Bankers Association CEO Dr Habil Olaka, bank contribution by banks can be attributed to the high regulation in the banking industry. In 2018, the financial services sector’s contribution to GDP growth ranged from 0.1% to 0.2%. Having in mind that the sector is not a significant driver of GDP growth, the high corporate tax contribution is also an indication of high levels of regulation and compliance in the industry.