Banks pay Sh129b in taxes as economy rebounds from pandemic

From left, Edward Karanja (KRA), PwC's Alice Muriithi and KBA CEO Habil Olaka. [Wilberforce Okwiri, Standard]

The amount of taxes that banks paid to the government grew to pre-pandemic levels to Sh129.5 billion in 2021.

This was a 23.6 per cent growth from Sh104.8 billion remitted by the industry to the government as taxes a year earlier, which a new report by the Kenya Bankers Association (KBA) attributes to the economy bouncing back from Covid-19 woes.

Other factors at play included a sharp increase in excise duty collections. This is after the Finance Act, 2021 increased the scope of services that attract the tax as well as taking away goodies that the government had put in place in 2020 to help firms cope with Covid-19.

The total tax contribution includes taxes borne by the banks such as corporate tax as well as taxes that banks collect from customers and paid to the government. “The 38 participants reported taxes borne of Sh63.91 billion and taxes collected of Sh65.61 billion, making a total tax contribution of Sh129.52 billion in 2021,” reads the report co-authored by audit firm PwC.

“The 2021 total tax contribution is a 23.59 per cent increase from 2020 and more importantly, greater than the total tax contribution of Sh120.12 billion reported in 2019 – a signal that the banking sector and indeed the entire economy was well on the recovery path in 2021.”

The report noted that the banking sector contributed 25.57 per cent of total corporate taxes received by the State from all the sectors in the country compared to 24.2 per cent in 2020.

Corporate tax paid by Kenyan banks increased 13.15 per cent - from Sh43.73 billion in 2020 to Sh49.48 billion in 2021. The increase in corporate tax borne, the report said, was a result of increased vibrancy in the economy in 2021 compared to 2020.

The economic rebound last year was seen in various indicators such as the 85.17 per cent increase in profit before tax compared to 2020 as well as a decrease in loan loss provisions by 46.67 per cent.

Additionally, the State instituted measures to cushion institutions in 2020 from the harsh impact of Covid, including lowering the corporate tax rate to 25 per cent.