Kenya: Tax contribution of banks grew by 39.9% in 2022

According to the latest study conducted by PwC and the Kenya Bankers Association, the tax contributions from lenders in Kenya surged by 39.94% in 2022, reaching Ksh129.5 billion as opposed to Ksh 129.5 billion the previous year. The report highlighted that the banking sector's tax contribution in 2021 accounted for 8.9% of Kenya's total tax collection, indicating a significant financial milestone for the industry. To gain more insights into this remarkable growth, CNBC Africa had an exclusive interview with Habil Olaka, the CEO of the Kenya Bankers Association. Olaka elaborated on the factors that propelled this substantial increase, citing the rise in excess duty and withholding taxes. He emphasized that the positive growth was a result of a robust recovery compared to the previous year, reflecting the banking sector's increasing contribution to the nation's exchequer. Olaka further discussed the banking sector's concerns regarding the challenging provision of the five days withholding tax collection outlined in the 2023 finance act. He pointed out the complexity and burden of collecting and remitting taxes within a 24-hour timeframe, especially for taxes that accrue on a daily basis, like interest on deposits. The CEO stressed the importance of aligning tax regulations with current realities such as automation and digitization to ease compliance and enhance efficiency. Olaka also shed light on other provisions in the 2023 finance act impacting the banking industry, such as additional contributions to the housing development levy and the reduction in excess duty on money transfer services. Notably, he highlighted the outdated income tax act of 1974 and underscored the necessity of updating it to accommodate the current technological advancements and operational requirements of the banking sector. In light of Kenya's fluctuating tax regime, Olaka expressed concerns about the sector's ability to plan and forecast effectively amidst volatile tax policies. To address this issue, he advocated for the establishment of a national tax policy to provide stability and clarity to taxpayers, enabling them to make informed long-term financial decisions. Shifting focus to the forthcoming Monetary Policy Committee (MPC) meeting scheduled for August 9th, Olaka shared his expectations, emphasizing the need for a coherent assessment of market parameters. He recommended maintaining the current monetary policy rate to allow for the full transmission of previous adjustments and to monitor the evolving inflation and economic landscape. Olaka expressed optimism about the easing inflation rates falling within the government's target range and anticipated positive outcomes from the implemented measures. He urged the MPC to exercise prudence by assessing the impact of previous decisions before making further adjustments, considering the delayed transmission mechanisms within the banking sector. In conclusion, Olaka's insights underscored the importance of a stable tax environment, updated regulatory frameworks, and strategic monetary policy decisions to sustain the banking sector's growth and contribute significantly to Kenya's economic development.