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Banking sector contributed 27% of all corporate taxes paid in Kenya in 2019,2020-Report

Speaking during the report’s release today, Kenya Bankers Association Chief Executive Officer Dr. Habil Olaka noted that the contribution indicates the industry has remained resilient,  navigated the challenges occasioned by the COVID-19 pandemic, and continued supporting the economy.

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Kenya Bankers Association CEO Dr.Habil Olaka(Left),Mrs.Rispah Simiyu, KRA Commissioner Domestic Tax and Mr.Titus Mukora(Right),PwC partner hold copies of total Tax contribution of the Kenyan Banking sector Report during the launch at Serena Hotel, Nairobi.PHOTO/Courtesy.

The banking industry contributed 27 percent of all corporate taxes paid in Kenya in 2020 and 2019 even as the adverse impact of the COVID-19 pandemic caused a 12 percent overall decline in their total tax contribution in 2020 compared to 2019.

A new report compiled by audit firm PricewaterhouseCoopers (PwC) on behalf of the Kenya Bankers Association attributes the decline to reductions in corporate taxes and Pay As You Earn (PAYE) collections.

“This decline is partly attributable to reduced tax rates, specifically reduction of corporate tax rate from 30 percent to 25 percent, reduction of the top PAYE rate from 30 percent to 25 percent and the reduction of Value Added Tax rate from 16 percent to 14 percent. The aim of these measures was to provide relief to taxpayers against adverse economic effects of the COVID-19 pandemic,’’ the report notes.

Corporate tax and PAYE are the largest contributors of the total tax contribution of the sector standing at 42.5 percent and 16.5 percent respectively.

Speaking during the report’s release today, Kenya Bankers Association Chief Executive Officer Dr. Habil Olaka noted that the contribution indicates the industry has remained resilient,  navigated the challenges occasioned by the COVID-19 pandemic, and continued supporting the economy.

“As an industry we recognise the important role the financial services sector plays in supporting  economic growth. In this regard, we remain committed  to sustain 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.

Due to the COVID-19 pandemic, the  economy experienced a depressed economic performance and quality of assets, with provisioning for loan losses increasing by 47.5 percent to Sh.198.1 Billion from Sh.134.3 Billion in 2019.

Loan loss accommodations absorbed 45.7 percent of non-performing loans compared to 40.2 percent in 2019, according to the State of the Banking Industry Report 2020.

The industry also restructured customer loans worth Sh. 1.63 Trillion or 54.2 percent of the total Sh. 3 Trillion loan portfolios, with the percentage of gross non-performing loans to gross loans significantly increasing  to 14.1 percent by December 2020 compared to 12 percent in December 2019.

Despite the challenges, access to credit for MSMEs increased. According to the Central Bank of Kenya (CBK) 2020 MSME Survey report, lending to micro, small and medium-sized enterprises increased by 42 percent between 2017 and 2020 to stand at Sh.638.3 billion by December 2020, up from Sh.413.9 Billion in December 2017.

The report also notes that the Banks that participated in the study 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,” commented Alice Muriithi, Associate Director at PwC Kenya and the lead technical advisor on the study, adding that the report raises a number of questions about how tax policy impacts the banking sector and the impact of tax policy on the sector’s contribution to the tax base and the economy.

The Total Tax Contribution of the Kenya Banking Sector report also reveals that the cumulative ratio of taxes borne to profit of 32 banks surveyed 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 indicates.

“The taxman applies strict criteria in terms of which provisions can be tax deductible in determining taxable profits. In practice, there is misalignment between provisioning for accounting purposes and the deductibility of the same provisions for tax purposes, and this misalignment continues to drive up the effective tax rates for banks and particularly, the Total Tax Rate (TTR),” said Ms. Muriithi.

The report shows that banks invested approximately Sh. 1.6b Billion in technology in the years 2019 and 2020 combined. This is compared to approximately Sh. 1.3 Billion in the 2017 and 2018 periods, demonstrating the sector’s prior commitment to the digitization journey well before the beginning of the pandemic.

The report further shows a 42.2 percent decline in excise duty collected by the banking sector in 2020 relative to 2019, attributable to regulatory guidelines issued by the Central Bank of Kenya requiring banks to waive fees on transfer of money between bank accounts and mobile phone wallets and also waive balance enquiry charges as a measure to mitigate the COVID -19 pandemic. This is also aligned to the 8 percent decline in fees and commissions income earned by the banking industry in 2020 relative to 2019.

On a year-on-year basis, the 32 banks that participated in the total tax contribution study represent 95.2 percent of the industry in 2019 and 96.2 percent of the industry in 2020.

PwC Tax Partner Titus Mukora observed that the study offers an opportunity for the tax contribution of the banking sector to be quantified and analysed so that policy makers can assess whether the operating environment is supportive of the sector.

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Atheists fault petition seeking to deregister society

Atheists in Kenya have protested a petition that they say seeks to create a notion that Kenya is a nation by and for believers in God only.

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President of the Atheists in Kenya Society, Harrison Mumia

Atheists in Kenya have protested a petition that they say seeks to create a notion that Kenya is a nation by and for believers in God only.

Former Juja MP, Dr Stephen Ndichu has moved to court seeking to have the Atheists in Kenya Society suspended on grounds that its continued existence is unconstitutional.

In a statement, the society’s president, Harrison Mumia says the petition is an assault on religious freedom and an insult to the diversity of the Kenyan people.

“We find the petition repugnant to a good conscience,” he stated adding that Dr Ndichu is a Christian fundamentalist who seems to harbour paranoid fantasies about the dangers of atheists existing in Kenya.

He further accused Dr Ndichu of seeing enemies where there is none and that the society was surprised, but not shocked as religion has historically inhibited progress.

He vowed that the society would do everything within its power to defend its right to remain a registered society and urged Kenyans to support fighting the petition.

On Sunday, the society said it will be writing to President William Ruto seeking an invitation to State House, just like the evangelical denominations.

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Uhuru Gardens ready for Madaraka Day fete, says PS Kibicho

The principal secretary said they would be visiting the gardens every Thursday until June 1 to ensure all loose ends are tied up properly, promising that the celebrations will be very colourful.

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Madaraka Day

This year’s national Madaraka Day celebrations at Uhuru Gardens in Nairobi County will be open to 30,000 people, up from 10,000 in 2021.

Permanent Secretary in the State Department for Interior, Dr Karanja Kibicho, said this follows the relaxation of COVID-19 containment measures.

“Children will also be allowed in on the celebrations this year, and we expect county celebrations to happen too,” the PS said while on an inspection tour of the venue.

The PS said the government decided to move the celebrations from the County rotational back to Nairobi because it will be the last event for the current administration before it exits office.

“Because of the significance of this particular Madaraka day, being the last for this regime, we decided to celebrate it at Uhuru Gardens to break the tradition of celebrating it in counties,”

He revealed that preparations were currently at 90 percent complete and expressed confidence that all will be set for the event as the country marks 59 years of self rule.

The principal secretary said they would be visiting the gardens every Thursday until June 1 to ensure all loose ends are tied up properly, promising that the celebrations will be very colourful.

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Queen Elizabeth mourns Kibaki as a great Statesman with commendable legacy

Kibaki will be buried at his home in Othaya, Nyeri County on Saturday.

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Queen Elizabeth II has mourned former President the late Mwai Kibaki eulogizing him as “a great statesman”.

“I was sorry to receive the news of the death of Mwai Kibaki. He had a lifelong record of service to the Kenyan people. It will be of deep sadness to your country to have lost a great statesman, but Kenya can take pride in the legacy of his leadership. I send you and the people of Kenya my condolences at this loss,” the message read.

The British High Commission further affirmed its close ties to Kenya and renewed its assurances to the country’s Ministry of Foreign Affairs.

“The British High Commission avails itself of this opportunity to renew to the Ministry of Foreign Affairs of the Republic of Kenya the assurances of its highest consideration,” the High Commission said.

The late Kibaki passed away on 21 April 2022, aged 90.

President Uhuru, who issued a proclamation that he would be granted a state funeral with full civilian and military honours, announced his death.

Kibaki will be buried at his home in Othaya, Nyeri County on Saturday.

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