KRA owes banks Ksh.13B in irrecoverable taxes – report

The Kenya Revenue Authority (KRA) owes commercial banks an estimated Ksh.13.3 billion in irrecoverable taxes mirroring on the sector’s disproportional levy’s, banks tax disclosures show.

The revelations contained in a PwC report covering the 2017 and 2018 financial years relate to the recovery of paid up input Value Added Tax (VAT) on the banking sector’s infrastructure purchases.

According to the bankers’, the disclosures further mirror the high proportion of taxes levied on the financial institutions in a matter which makes for an ongoing concern to the industry’s growth prospects.

“The financial services sector thrives in predictability. We would seek for the development of a comprehensive banking industry tax policy that would seek to address some of the sticky issues around taxation while taking a long-term view on the industry,” said the Kenya Bankers Association (KBA) Chief Executive Officer Habil Olaka.

Of the Ksh.62 billion and Ksh.48.4 billion of taxes borne by banks in 2017 and 2018, irrecoverable taxes were only second to corporation tax and amounted to 10.5 percent and 14.1 percent of total tax dues receptively.

The amounts in question accrue from payments made to the suppliers of technologies as bank seeks to scale up their shift towards digital solutions in a quest for costs rationalization with net investments in technologies being valued at a higher Ksh.24.2 billion in 2018.

Nevertheless, KRA Deputy Commissioner for Domestic taxes Caxton Masudi confronts the notion of greater irrecoverable taxes saying banks are spared from on-boarding additional VATable taxes to output services.

“It’s a similar case to wanting to have your cake and eating it. If we wer to charge banks with output VAT as a way of allowing recoveries to with held  taxes, this would be an additional charge on the cost of services.

In addition to the growing irrecoverables, banks account for the top share of companies to remit income taxes with Ksh.1 in every Ksh.4 collected composing of banks corporation taxes.

The banks paid up corporation taxes as a share of the net duty basket by companies represented 28 and 24 percent of all firm disbursements in 2017 and 2018.

Even so, total corporate taxes by commercial banks fell in 2018 on the back of constrains to lending as both banking assets and net income slumped.

Commercial banks however remain a key pillar in domestic revenue mobilization having supported KRA in the collection of Ksh.96.8 billion in the past two years through the receipt of fees and excise charges.

PwC Tax Patner Titus Mukora champions for the review of the banking sector’s taxation regime while worrying of the impact of current policy on current growth.

“If we are trying to set ourselves up as a financial hub like London or New-York then we are very far from it at the moment,” he said.

Kenya’s commercial banking sector corporation tax charge alone sits above that of jurisdictions such as Frankfurt and Singapore reflecting on the less competitive of the domestic scene for cross-border investments