Kenya: Banks tax contribution up 24% in 2021

Kenya's banking sector has witnessed a substantial increase in tax contribution in 2021, with banks paying a total of 129.52 billion Kenyan shillings to the Kenya Revenue Authority. This marked a 24% surge from the previous year's figure of 104.8 billion Kenyan shillings. A report jointly conducted by the Kenya Bankers Association and PwC revealed that this was the highest total tax contribution by banks in Kenya in five years. Alice Mureithi, Associate Director of Tax and Transfer Pricing at PwC, shed light on the data and factors driving this significant growth. The total tax contribution comprises of various components such as corporate tax, withholding tax, excise duty, and irrecoverable VAT. Mureithi highlighted that the increase in profitability within the banking sector, driven by factors like reduced loan loss provisioning and larger income recoveries, played a vital role in the uptick in tax contribution. The release of liquidity into the market also led to a higher volume and value of transactions, thereby increasing tax revenues. Notably, excise duty experienced a significant growth of 58.25%, reflecting the country's economic recovery and increased market activity. Despite economic uncertainties in 2022, including the upcoming presidential elections, high fuel prices, and global challenges like climate change, Mureithi is optimistic about tax collections for the financial year. She explained that the balance of tax corporate tax payment, anticipated to be significant in 2022 due to the robust economic performance in 2021, is likely to bolster tax revenues. However, cautious economic behavior in 2022 may moderate the growth in tax contributions compared to the previous year. In discussing tax policies, Mureithi emphasized the importance of aligning tax regulations with the banking sector's growth prospects. She pointed out the need for predictability and certainty in tax policies, citing ongoing disputes regarding the taxation of international card transactions with companies like Visa and Mastercard. Mureithi highlighted the draft national tax policy as an opportunity for stakeholders to collaborate and establish stable taxation policies for the banking industry, ensuring a sustainable tax base for the future. The banking sector's substantial contribution to tax revenues underscores its vital role in supporting the country's fiscal framework. As one of the most regulated and formalized sectors, banks play a crucial part in ensuring compliance and driving economic growth through increased tax payments. Moving forward, a collaborative effort between policymakers and industry stakeholders will be essential to enhancing tax policies and fostering a conducive environment for sustainable tax contributions.