In a drive to reduce the cost of employing staff, Kenyan banks are using technology to serve their clients. This was revealed a report on Total Tax Contribution of the Kenya Banking Sector by PwC Kenya in partnership with Kenya Bankers Association (KBA).
“The banking sector currently faces considerable challenges ranging from fast-paced technological changes leading to shifts from brick and mortar distribution channels to technology enabled channels and increased focus by stakeholders on improving cost to income ratios and improving returns for shareholders,” said Titus Mukora, Director, Tax Services for PricewaterhouseCoopers Limited.
” These changes are happening within the environment of an interest rate cap regime which has limited the level of interest rates that banks can charge. It is important that the tax contribution of the banking sector to taxes is evaluated in the context of this operating environment,” she said further.
The report which is the first of its kind in the East African country shed more light on the tax contribution of the banking sector in forms of taxes borne by the banks such as corporation tax and irrecoverable VAT, and taxes collected as an agent of government such as PAYE, excise duty and withholding tax over the 2017 and 2018 financial periods. The report which involved 38 banks and microfinance institutions which made a total tax contribution of Ksh108.1 billion and Ksh99 billion in 2017 and 2018 respectively shows the contribution of the industry to taxes.
“It is expected that investments in technology will with time lead to lower employee costs which will inevitably lead to lower growth in PAYE contribution by the sector. However, this should translate to higher corporate profits, higher corporate taxes and withholding tax on dividends. Withholding taxes borne and collected increased from KES 19bn in 2017 to KES 19.9bn in 2018 representing an increase of 4.7 percent,” the report said.
This increase is aligned with the 4 percent increase in technology investments year on year. This is indicative of significant withholding taxes that accrue on payments to suppliers of technology who are often based abroad. Banks will tend to bear the 20 percent withholding taxes on payments made to them.
During the course of the study, the employees employed by the banks reduced from 29,058 in 2017 to 28,352 in 2018. However, according to the report, the technology implementation did not reduce the PAYE to the government as the amount grew from Kshs 18.7 Bn in 2017 to Kshs 19.2 Bn in 2018. This was due to the increase in wages paid to higher cadre employees in the sector and the continued replacement of lower cadre jobs within banks as the sector increasingly adopts technology.