Despite the severe effects emerging from the Covid-19 pandemic, Kenyan commercial banks were reporting double-digit profitability growths resulting from the global crisis, earning huge dividends for their shareholders.
It can be noted that most government institutions discouraged cash transactions in order to contain the covid pandemic level. This directly promoted digital transactions like mpesa and m-banking.
Besides owners, a new survey has shown that Kenya Revenue Authority(KRA) was the second best beneficiary of the supernormal profits.
According to PricewaterhouseCoopers (PwC) report, more than a quarter of corporate taxes paid to KRA in the year to December 2021, came from banks.
On Wednesday, a report was released on behalf of the Kenya Bankers Association (KBA), indicating the corporate taxes paid to the KRA surpassed 22.82% to Sh50.7 billion. A year earlier, the sector’s corporation tax payment amounted to Sh41.28 billion.
Banks are among the most profitable institutions in Kenya. They are among the biggest revenue generators in a country where tax compliance among corporates is at a low level.
The taxation law requires local companies to pay 30% of their profits as corporate taxes.
A whooping Sh198.24 billion was the total corporate tax paid in Kenya last year, with banks accounting for 25.57% (Sh50.7 billion) of the amount.
“The increase in 2021 compared to 2020 was largely driven by increase in profits with the profit before tax of the banks increasing by 85.17 percent in 2021 relative to 2020,” said the report.
“The profit before a tax increase is aligned to increased economic activity in 2021 as reflected by the GDP growth which grew from a contraction of 0.3 percent in 2020 to 7.5 percent in 2021.”
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According to KRA, the banking sector includes 44 listed lenders, 7 micro financiers, 16 SACCOs, and 38 custodian banks, not forgetting international financiers and bureaus with local offices.
The study focused on both the corporate tax and Value Added Tax (VAT) that it is not able to recover (irrecoverable VAT). Also, the taxes that banks collect as an agent of government such as PAYE.
Overall, the banking industry contributed Sh129.52 billion in taxes accruing from day-to-day operations in the year under the review.
Documented filings from 38 banks which participated were relied on. This represents 97% of the market share.