A recent market survey by PWC on Total Tax Contribution of the Kenya Banking Sector has revealed that in the year 2017 and 2018 banks contributed 207.2bn in taxes with the industry’s high contributor being corporate taxes. Corporation tax payments made by banks in the years 2017 and 2018, stood at Ksh 52bn and Ksh 39bn.
For every Ksh 4 of corporation tax paid in Kenya, approximately Ksh 1 was paid by the banking sector, translating to 26% of the corporate taxes collected by KRA in Kenya. This is linked to the fact that unlike other industries such as manufacturing that enjoy tax incentives, corporate tax incentives for banks are very rare.
Increased budgetary deficits have led to changes in the tax regimes inclined towards increasing the taxes collected by KRA. 43.5% of the banks operating profits were used to pay taxes, a reflection of approximately half of the industry’s total tax contribution. Of the tax collected by the government through KRA from the banks include income tax deducted under PAYE, employee Social Security, withholding taxes, withholding VAT and net VAT.
PAYE is the largest component of employment taxes. In the year 2017 and 2018, Employment taxes (PAYE, employer, and employee NSSF contributions and employee NHIF contributions) contribution amounted to Ksh 20.1bn and Ksh 20.8bn respectively.
Despite the decline in employee numbers, the amount of PAYE collected by participating banks grew. Over the two-year period, the banking sector’s PAYE per capita was Ksh 660k which is five times higher than the country’s PAYE per capita.
Within an environment of an interest rate cap regime and challenges ranging from fast-paced technological changes has seen higher-level employees in the sector eat the bigger piece of the pie and continued replacement of lower-level jobs within banks as the sector increasingly adopts the technology.