NAIROBI, Kenya, Sep 2- A new report by audit firm PricewaterhouseCoopers has revealed that the COVID-19 pandemic caused a 12 percent decline in the banking sector’s tax contribution which dropped to Sh224.9 billion.
The survey conducted across 32 banks revealed that the decline caused by the pandemic resulted from the reduction of various taxes across different sectors of the economy.
“This decline is partly attributable to reduced tax rates, specifically reduction of the corporate tax rate from 30 per cent to 25 per cent, reduction of the top Pay As You Earn rate from 30 per cent to 25 per cent, and the reduction of Value Added Tax rate from 16 per cent to 14 per cent,” the report reads.
According to the data report dubbed Total Tax Contribution of the Kenya Banking Sector, Corporate tax and PAYE are the largest contributors to the total tax filed by the sector accounting for 42.5 percent and 16.5 percent respectively.
The report further revealed that the cumulative ratio of taxes borne to profit during the period was 48.5 percent, representing the Total Tax Rate (TTR) of the participating banks.
‘’A cumulative TTR of participating banks of 48.5 percent means that for every Sh. 100 of profits, banks bear taxes of Sh. 48.5,” the report indicated.
The study further reported a 42.2 per cent decline in excise duty collected by the banking sector in 2020 relative to 2019, attributable to covid-19 regulatory guidelines requiring banks to waive fees on transfer of money between bank accounts and mobile phone wallets.
“This is also aligned to the 8 per cent decline in fees and commissions income earned by the banking industry in 2020 relative to 2019,” the report noted.
Kenya Bankers Association Chief Executive Officer Habil Olaka who spoke during the release of the report, noted that the industry has remained resilient, navigated the challenges occasioned by the COVID-19 pandemic, and continued supporting the economy.
“As an industry, we recognize the important role the financial services sector plays in supporting economic growth. In this regard, we remain committed to sustaining efforts towards anchoring business recovery in the face of the COVID-19 disruption,’’ he said, adding that the banking sector will continue to build capacity among vulnerable enterprises through de-risking initiatives such as the Inuka Enterprise Program.
The survey further showed that access to credit for MSMEs increased in the period under review mirroring a similar study by the Central Bank of Kenya (CBK) which showed that lending increased by 42 percent between 2017 and 2020.
As part of its finding, the PwC report noted that Banks contributed 7.5 percent of the total government tax receipts in 2019 and 2020.
“Considering a total population of 6 million registered taxpayers countrywide, this is indeed a very significant contribution,” Alice Muriithi, Associate Director at PwC Kenya commented.
Banks invested nearly Sh1.6 Billion in technology in 2019 and 2020, compared to Sh1.3 billion invested between 2017 and 2018 highlighting the sector’s efforts towards digitization.
