Corporate Tax

Banks contribute 24 p.c of whole corporate taxes

Companies

Banks contribute 24 percent of total corporate taxes

Friday 3rd September 2021

The CEO of the Kenyan Bankers Association (KBA), Habil Olaka. FILE PHOTO | NMG

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BY PATRICK ALUSHULA
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  • The contribution of commercial banks to total corporate taxes in Kenya was 24.1 percent last year, up from 29.7 percent in 2019.
  • The reduced contribution underscores the impact of lower profitability and the temporary lowering of the tax rate in the Covid-19 environment.

The contribution of commercial banks to total corporate taxes in Kenya was 24.1 percent last year, up from 29.7 percent in 2019.

The reduced contribution underscores the impact of lower profitability and the temporary lowering of the tax rate in the Covid-19 environment.

A report released Thursday by PricewaterhouseCoopers (PwC) on behalf of the Kenya Bankers Association (KBA) shows that banks accounted for Sh41.2 billion of the total corporate tax of Sh170.5 billion paid in Kenya last year. That was a decline from 2019 when the sector contributed Sh52.3 billion out of a total of Sh175.9 billion.

“The article shows that the industry has remained resilient, has mastered the challenges caused by the Covid-19 pandemic and has continued to support the economy,” said Habil Olaka, KBA CEO.

PwC said the decline was due in part to lowering the corporate tax rate from 30 percent to 25 percent, the top pay-as-you-ear (PAYE) tax rate from 30 percent to 25 percent, and a drop in the sales tax rate from 16 percent to 14 Percent attributed.

“With a total of six million registered taxpayers across the country, this is a very significant contribution indeed,” said Alice Muriithi, Associate Director at PwC Kenya.

Taxes also fell during the period when banks posted a gross profit of 30.9 percent to SH107.3 billion in 2020 – the lowest returns since 2012.

Corporate income tax and PAYE are the largest contributors to the sector’s total tax contribution at 42.5 percent and 16.5 percent, respectively.

The study, which included 32 banks, puts the cumulative ratio of taxes paid to profits earned at 48.5 percent, meaning banks pay Sh48.50 tax on every Sh100 profit.

The Kenyan tax authorities generally have strict criteria that make provisions tax deductible.

Banks therefore pay higher taxes as the gross receipts for tax purposes are typically higher than what they report to the Central Bank of Kenya.

“There is a mismatch between accounting provisions and the deductibility of those same provisions for tax purposes, and this further increases effective tax rates for banks,” said Ms. Muriithi.

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