The head of one of Kenya’s largest banks has strongly criticized the government’s proposal to remove value-added tax (VAT) exemptions for banking transactions, warning it could make basic financial services too expensive for many Kenyans and drive activities into the unregulated sector.
In a series of tweets, John Gachora, Managing Director and CEO of NCBA Group, expressed concern over the Finance Bill 2024, which aims to delete VAT exemptions for services like card issuance, money transfers, foreign exchange, and cheque clearing.
“It will make basic banking expensive, raise the cost of credit, and drive people to the black market,” Gachora cautioned.
Kenya has been lauded as a global leader in financial inclusion, with mobile money and other innovations helping to bring millions of underbanked citizens into the formal financial system. But Gachora warned the proposed tax changes could undermine this progress.
“Kenya has been a leading light in financial inclusion globally. An unnecessary tax on banking transactions will make us uncompetitive,” he tweeted.
The veteran banker also highlighted the risk of large foreign exchange transactions being shifted offshore to avoid the VAT charges. “Large FX transactions will be offshored. Completely unnecessary!” he wrote, urging lawmakers to reject the “attempt to tax you for the simple act of paying for goods and services.”
According to the draft bill, services that could become subject to the 16% VAT rate include issuing credit/debit cards, telegraphic transfers, forex dealings, cheque processing, issuing securities like bills of exchange, debt assignment, and providing financial services on commission.
Tax experts have warned the changes could significantly increase costs for banks and consumers. An analysis by law firm Bowmans notes the removal of some exemptions appears “irrational” and would complicate VAT administration for financial institutions operating across exempt and taxable services.
While advocating for taxpayers to meet their obligations, Gachora appealed to lawmakers: “Urge our MPs to do the right thing. Keep Kenya a leading light when it comes to banking and finance.”
The proposed effective date for the VAT changes is July 1, 2024.
