Despite facing a challenging economic environment in 2022, which included increased inflation, prolonged drought, currency depreciation, geopolitical pressure, and election uncertainties affecting businesses across Kenya, the banking sector showed remarkable resilience. The sector contributed a record amount of Kshs 181.3 billion to the Kenya Revenue Authority (KRA), the highest ever collected from banks since 2019. The significant increase in the total tax contribution was primarily driven by Corporate Tax (CT), which surged by 77.3% to Kshs 87.7 billion in 2022 from Kshs 49.8 billion in 2021.
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The banking sector also saw a rise in withholding tax, reaching Kshs 37.3 billion, and Pay As You Earn (PAYE) contributed Kshs 37.2 billion during the same period. The total tax contribution from 39 banks participating in the PwC report on the Kenya Banking Sector’s Total Tax Contribution in 2022 represented 8.93% of all government receipts, an improvement from 6.8% in 2021.
The report also analysed historical tax contribution trends since 2018, with the Kenya Revenue Authority collecting Kshs 99.0 billion in 2018, Kshs 120.1 billion in 2019, Kshs 104.8 billion in 2020, and Kshs 129.5 billion in 2021. In 2020, the total tax contribution declined by 16% due to the initial impact of the Covid-19 pandemic on the country’s GDP, resulting in a 31.0% decrease in bank profitability, increased loan write-offs, provisions, and government-issued tax reliefs.
However, the sector rebounded in 2021, with a 23.6% increase in total tax contribution compared to 2020, driven by a substantial surge in corporate tax, excise duty, and withholding tax. The economic recovery in 2021 was attributed to the reopening of all sectors of the economy, facilitated by greater COVID-19 vaccine access.
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Furthermore, the growth in 2022 was boosted by a significant 60.13% increase in Excise Duty, primarily attributed to higher fees and commissions. Kenya’s banking sector has demonstrated its significance in driving economic progress and supporting the nation’s financial stability, despite facing adverse circumstances.
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