The Kenyan government is more reliant on tax contribution of banks compared to Tanzania; a new report by Kenya Bankers Association shows.

• 43 participating banks (37 banks and 6 Microfinance Institutions) representing over 99 per cent of Kenya’s banking sector market share from net assets perspective provided last year’s TTC data.
• During the period ended December last year, Kenya’s banking industry comprising of 43 institutions contributed 8.8 per cent of all taxes paid in Kenya, while Tanzania Bankers Association (TBA) total tax contribution report indicates participating banks in that economy contributed 6.6 per cent of all taxes paid to the Tanzanian government.

“This means that compared to the Tanzania government, the Kenyan government is more reliant on the tax contribution of banks. Noteworthy, we were not able to make similar comparisons for other East African countries as the TBA is the only Banking Association in the East Africa region that has published a total tax contribution (TTC) report,” says Acting Chief Executive Officer Kenya Bankers Association, Raimond Molenje.

The estimated total tax contribution for the 43 banks and micro finance institutions that participated in the study is Ksh190.26 billion. In 2022, the total tax contribution was Ksh181.27 bn. “At Ksh 190.26 bn, this is the highest TTC since the study’s inception in 2017 and is equivalent to 8.78 per cent of all the taxes collected by the government1 and represents a year-on-year growth of 4.96 per cent,” notes Molenje

“Given the current high levels of compliance within the banking sector, this perhaps indicates that the tax contribution of the banking sector is reaching a level where it cannot be optimised further,” he adds.

The year 2023 saw the strengthening of Kenya’s economic performance despite challenges such as elevated inflation, rising debt service obligations and the depreciation of the Kenya shilling. Real GDP grew to 5.6 per cent in 2023, surpassing the previous year’s growth of 4.9 per cent.

This growth was driven by a robust rebound in the agriculture sector, following improved weather conditions, and moderate growth in the services sector, particularly tourism and financial services. Notwithstanding the improved GDP growth, the year 2023 saw an increase in the ratio of Non Performing Loans (NPLs) to total loans from 13.8 per cent in 2022 to 14.2 per cent in 2023.

This can be attributed to macroeconomic factors such as elevated inflation, currency depreciation, and increased costs of doing business. The increase resulted in a reduction in the profitability of the banking sector with the Profit Before Tax (PBT) reducing by 9.24 per cent and Corporate Tax paid by the banking sector reducing by 23 per cent.