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Banks tax payment hit five-year high in 2021 -survey

KBA said the current economic conditions will likely reduce the volume and value of bank transactions in 2022.

In Summary

•KBA said the current economic conditions will likely reduce the volume and value of bank transactions in 2022.

•Bank's 2021 tax contribution of Sh129.52 billion surpassed 2020's value of Sh104.8 billion by 23.59 per cent.

KBA chief executive Habil Olaka /FILE
KBA chief executive Habil Olaka /FILE

Banks are likely to struggle to reach their 20202 tax contribution targets due to prevailing economic conditions, a new report has unveiled.

This even as banks' 2021 tax contribution hit a five-year high of Sh129.52 billion surpassing 2020's value of Sh104.8 billion by 23.59 per cent.

In its Total Tax Contribution of the Kenya Banking Sector report, audit firm PricewaterhouseCoopers (PWC), said the current economic climate will likely reduce the volume and value of bank transactions in 2022.

The Kenya Bankers Association attributed the high tax compliance to the significant market recovery, especially in service industries including hospitality, aviation and the SME sector.

"The increase in banks tax contribution is driven by substantial jump in corporate tax borne, excise duty collected and withholding tax collected - all on account of the economic recovery witnessed in 2021 as a result of reopening of all sectors of the economy," PWC 's report read.

Kenya Gross Domestic Product (GDP) grew by 7.5 per cent growth in 2021, the fastest rate in 11 years, according to Kenya National Bureau of Statistics (KNBS) data. 

Due the rebounding economy, Kenya Revenue Authority's total tax collection was Sh1.899 billion, with banks contributing 6.82 per cent.

Banks corporate taxes in 2021 was Sh50.69 billion, representing 26 per cent of all corporate taxes collected in Kenya during the same period.

The value was 24 per cent higher compared to the Sh41.28 billion collected in 2020.

KBA chief executive officer Habil Olaka attributed the rise to an increase in the profit before tax by banks which stood at 85.17 per cent in 2021.

"The PBT increase is aligned to increased economic activity in 2021 as reflected by the GDP growth which grew from -0.3 per cent in 2020 to 7.5 per cent in 2021," Olaka said.

The study further showed that the measure of the cost of all taxes borne relative to profitability was 32.85 per cent in the period under study.

This means that for every Sh100 of profits, banks paid Sh32.85 to the government as taxes.

However, this could decline this year as economic growth projections point to bleak figures.

In a recent report, the World Bank projected Kenya’s (GDP) to grow by 5.5 per cent in 2022 and 5.2 per cent on average in 2023–to 24, slower than in 2021. 

The lender noted that even though Kenya’s economic performance remained strong in the early months of the year, external challenges have piled pressure.

The economy is also experiencing volatility from looming political transition.