COVID-19 shaves Ksh.15.3 billion from bank taxes
Published on: September 02, 2021 07:20 (EAT)
The total tax contribution of the banking industry fell by Ksh.15.3 billion to Ksh.104.8 billion as the COVID-19 pandemic took its toll on the sector. This is according to a new report dubbed the total tax contribution of the Kenya Banking Sector by the Kenya Bankers Association (KBA) and co-authored by PwC which was published on Thursday. According to the report, the sectors tax contribution fell by 12.7 per cent from a greater Ksh.120.1 billion in 2019 from a contribution of factors including reduced corporate tax and PAYE rates at the start of the pandemic. “The decline in tax contribution between 2019 and 2020 was substantially driven by declines in corporate tax borne and PAYE collected. On top of the decline in tax rates, the COVID-19 pandemic lead to a reduction in bank profits which manifested itself in decline in the tax contribution of the banks,” notes part of the report. The report covers 36 banks which represented 96 per cent of the banking industry in 2020. Total taxes borne which represent direct costs by business including corporate tax and irrecoverable to Ksh.58.2 billion in the period from a greater Ksh.66.5 billion in 2019. Meanwhile tax collected which features taxes collected by businesses on behalf of tax payers including PAYE and withholding taxes fell to Ksh.46.6 billion from Ksh.53.6 billion previously. During the year the effective corporate tax rate fell to 25 from 30 per cent while the top PAYE rate was cut by a similar margin between April and December 2020. Corporate taxes paid by banks was down 21.2 per cent in the period at Ksh.41.2 billion from Ksh.52.3 billion as an outcome of the lower rates. At the same time, excise duty from banks was down 42 per cent at Ksh.9.3 billion from Ksh.16.1 billion on the back of waiver of bank fees for transfers between bank accounts and mobile-money wallets which remains at present. During the period banks further took a hit from loan payment holidays granted to customers and loan-loss provisions. Credit impairments for instance surged to 103.2 per cent of profit before tax in contrast to a low 25.4 per cent in 2019. The drop in PAYE taxes by the industry was meanwhile accompanied by an 8.3 per cent decline in the number of employees employed in the industry to 31,703 from 34,581. Corporate taxes continue to represent the largest share of revenue from the industry at 42 per cent ahead of PAYE and Withholding taxes at 17 per cent each. Total tax contribution by the industry was the lowest last year since 2018 when lenders yielded Ksh.99 billion in revenue for government. Despite the dip in taxes by the sector, the size of taxes by banks remains significant to exchequer funding. For instance, taxes collected from the industry across 2019 and 2020 represent 7.5 per cent of all collections by government and 27 per cent of all corporation tax. In 2020, the total tax rate of the baking industry stood at 55.5 per cent which means that the government is pocketing Ksh.55.50 out of every Ksh.100 of bank profits. The baking sector is the only industry to disclose its tax contribution. According to the Kenya Bankers Association (KBA) Chief Executive Officer Habil Olaka, the transparency by the industry seeks to foster open discussions on taxation with the tax man. “We have shown the way and lead by making disclosures on tax contributions. This opens up an avenue for having data driven discussions with policy stakeholders in terms of the tax policy going forward. At the same time Olaka has supported calls for the creation of a national tax policy as the industry itself seethes from the recent introduction of excise duty on fees and commissions on loans. “A tax policy creates predictability. You know that tomorrow the National Treasury cannot wake up and decide to increase a certain class of taxes without you having had enough planning for it,” he added.