How Treasury netted Sh195b in tax revenue from banks

Kenyan banks collectively contributed Sh194.8 billion to the national exchequer in 2024, on the back of increased profitability.

The figures show that the sector’s contribution to the economy has been growing since 2021, when the economy rebounded from the aftermath of the Covid-19 pandemic.

In 2024, the National Treasury collected nearly half of every Sh100 profit made by 36 participating banks and microfinance institutions.

For every Sh100 profit, the exchequer took Sh38.50 as tax.

According to the Total Tax Contribution of the Kenya Banking Sector 2024 Report by the Kenya Bankers Association and PwC Kenya, the Sh194.8 billion from the Kenya banking sector represented 8.09 per cent of all government tax receipts for the period, highlighting a significant reliance on a small pool of highly compliant taxpayers within the economy.

The report revealed that the sum comprised Sh100.12 billion in taxes borne, direct costs to the banks such as corporate tax, and Sh94.69 billion in taxes collected on behalf of the government, such as Pay As You Earn (PAYE) and withholding tax.

Kenya Bankers Association Chief Executive Raymond Molenje said the data provides valuable insights for policymakers as they consider how to balance fiscal sustainability with sector resilience. “The Sh194.81 billion tax contribution by 36 participating banks in 2024 highlights the sector’s central role in Kenya’s revenue mobilisation. The banks’ voluntary participation also reflects a strong commitment to transparency and responsible governance,” said Molenje.

The total tax contribution has been growing since 2021, when the sector experienced a total resurgence to Sh129.5 billion, up 23.59 per cent from 2020 figures.

In 2021, the growth was largely a reflection of the economic rebound following the reopening of the economy after the Covid-19 pandemic.

The recovery was evident in the substantial increases in corporate tax, excise duty collected, and withholding tax collected, all of which were buoyed by improved profitability and heightened economic activity as businesses and consumers resumed normal operations.

In 2022, the banking sector contributed Sh181.27 billion to the government, Sh190.26 billion in 2023, and Sh194.81 billion in 2024. In the period under review, the report highlights that there is a notable trend of the shifting nature of the tax burden.

While corporate tax remained the single largest component at Sh69.41 billion (35.63 per cent of total tax contribution), this was a 4.98 per cent decline from the same period in 2023.

This has been attributed to a significant rise in people-related taxes, driven by the full-year implementation of the Affordable Housing Levy, which saw collections from the banking sector more than double, surging by 113 per cent to Sh3.45 billion.

 PwC Country and Regional Senior Partner, Eastern Africa, Peter Ngahu said the percentage contribution from 36 banks underscores the banking sector’s important role in Kenya’s tax revenues. “It highlights the continued reliance on a few highly compliant taxpayers. This data informs the essential dialogue around tax policy needed to ensure the sector remains robust,” said Ngahu. The report further examines how banks distribute value to their key stakeholders.

In 2024, the government received the largest portion at 54.95 per cent via taxes, followed by employees at 25.62 per cent through salaries and benefits, and shareholders at 19.44 per cent through dividends.

The report notes that banks incur significant administrative costs, with an average of three full-time employees dedicated to tax-related tasks, costing about Sh13.5 million per bank each year.

Participants suggested reducing this burden by returning to monthly withholding tax filings and increasing automation using platforms such as iTax and eTIMS. “There is a clear call for more automation, such as the pre-filled returns as part of the VAT compliance, and clearer tax guidelines on aspects such as digital compliance tools,” the report showed.

 The study, which also assessed the complexity and costs of tax compliance, has reported that filing tax returns was rated moderately difficult, with the five-day deadline for Withholding Tax cited as an additional administrative burden.

Filing tax returns was rated moderately difficult (3.27/5), with the five-day deadline for Withholding Tax cited as an additional administrative burden.

According to the Kenya National Bureau of Statistics (KNBS), Kenya’s macroeconomic environment in 2024 was characterised by moderate growth.

Real GDP growth slowed to 4.7 per cent, down from 5.7 per cent in 2023. The banking sector report has attributed this deceleration to weaker performance in sectors such as construction and mining, which recorded contractions, even as agriculture, finance, real estate, and transport supported growth.

“The prevailing environment of elevated interest rates, inflationary pressures, and moderated credit uptake also shaped both sector performance and tax outcomes,” the Total Tax Contribution report showed.