KRA puts banks on the spot over tax on irregular lending

The Kenya Revenue Authority has announced that banks’ breaching the Central Bank’s lending guidelines will not benefit from tax deductions.

This comes on the back of rising cases of insider lending and high provisions for non-performing loans, which the tax man says has robbed it of much needed revenue.

According to KRA Director General John Njiraini, the revenue authority can no longer allow for high loss provisions, which in turn reduces the amount of tax a bank pays. In March, KRA announced that it fell short of its third quarter target by Ksh 69 billion largely on low corporate profitability, with banks making what it termed as excessive provisions for bad loans.

“Banks shall not be permitted to enjoy tax deductions for loans arising from irregular insider lending or loans for which inadequate collateral was secured,” Mr Njiraini said in a statement.

Mr Njiraini said banks found to be irregularly lending or lending without adequate collateral secure, would no longer enjoy the tax break.

The move comes even as restated financials showed chase bank had high insider loans while National Bank failed to provide adequate provisions for non-performing loans.

KRA has already issued demands to banks it felt do not qualify for the tax break.

The tax man’s move comes even as the Central Bank of Kenya tightens the noose on banks, calling for adequate provisions for loans they feel will not be recovered in an effort of protecting depositors.

The CBK is also scrutinizing bank financial reports, in a move aimed at keeping them honest.

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