New taxes on loan fees lift nettings from banks excise duty to Ksh.14.7 billion

The introduction of excise duty on loan fees and commissions has pushed excise duty nettings from the banking industry to Ksh.14.7 billion in 2021 from Ksh.9.3 billion.

The 58.3 per cent year-on-year increase in excise duty collected by the banking sector has been disclosed in the Total Tax Contribution of the Kenya Banking Sector report published on Wednesday.

Through the 2021 Finance Act which kicked in on July 1 last year; interest on loan or fees or commissions earned in respect of a loan became subject to exercise duty.

The amendment sought to align with a ruling by the Tax Appeal Tribunal (TAT) which stated fees paid in respect of a loan qualify as interest and hence subject to excise taxes.

The excise duty netting was however further lifted by the recovery of the economy in 2021 which provided a broader volume and value of transactions subject to excise duty.

The banking industry's total tax contribution for the year was up by 23.6 per cent to Ksh.129.5 billion from Ksh.104.8 billion in 2020.

The increase in the total tax contribution by the sector was largely attributable to the rebounding economic activities in the year.

For instance, corporate taxes by the banking industry hit Ksh.49.5 billion on the backdrop of an 85.2 per cent jump in the sector’s profit before tax (PBT).

Meanwhile, the banking sector collected Ksh.31.6 billion in withholding tax (WHT) as total deposits by the industry grew by 11 per cent year over year to stand at Ksh.4.6 trillion.

Other taxes collected by the banking industry include pay as you earn (PAYE)-Ksh.21.9 billion, withholding VAT (Ksh.2.9 billion) and VAT on imported services Ksh.3.1 billion.

The banking sector’s total tax contribution has been estimated to be equivalent to 6.8 per cent of total taxes collected in Kenya.