Introduction

This Total Tax Contribution report is the first of its kind in Kenya. The report outlines the tax contribution of the banking sector. The tax contribution is both in the form 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 taxes.

It is our hope that an evaluation of the banking industry’s total tax contribution will lead to more informed policy discussions around tax policy required for the banking sector and the contribution of the banking sector to the Exchequer. The last few years have seen increased budgetary deficits which have in turn led to changes in the tax landscape geared towards increasing the taxes collected. The banking sector has been at the heart of targeted reforms aimed at increasing tax revenues.

The banking sector currently faces considerable challenges ranging from fast-paced technological changes leading to shifts from brick and mortar distribution channels to technology enabled channels and increased focus by stakeholders on improving cost to income ratios and improving returns for shareholders. These changes are happening within the environment of an interest rate cap regime which has limited the level of interest rates that banks can charge. It is important that the tax contribution of the banking sector to taxes is evaluated in the context of this operating environment.

This study covers the 2017 and 2018 financial years and shows that the 38 banks that participated in this study made a total tax contribution of KES 108.1bn and KES 99bn for 2017 and 2018 respectively. This demonstrates the critical contribution of the industry to taxes. It is our hope that an increased understanding of the full contribution of the banking sector to the government finances, will inform policy discussions over the taxation of the industry.

We thank the 38 banks that participated in this study and the Kenya Revenue Authority (KRA) which provided crucial data for use in this report.

For PricewaterhouseCoopers Limited,

Titus Mukora,

Director, Tax Services