Finance Bill 2024: Kenya Bankers Oppose 16% VAT On Financial Services

• President William Ruto's administration proposed a raft of new tax changes and measures to finance the fiscal year 2024/25 budget
• The Finance Bill 2024 proposed to impose 16% VAT on all financial transaction services offered by commercial banks
• Kenya Bankers Association opposed the move saying that bank charges are not a direct payment for anything that can attract VAT

TUKO.co.ke journalist Wycliffe Musalia brings over five years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Commercial bank players have raised concerns over the 16% VAT proposal in the Finance Bill 2024.

The National Treasury proposed to impose 16% VAT on all bank transactions starting July 1, 2024.

In a statement released on May 17, 2024, the Kenya Bankers Association (KBA) urged members of parliament and the Treasury to reconsider the new tax proposal on bank charges.

"...while VAT applies to payments for goods and services, bank charges are not a direct payment for anything, but a cost recovery. Therefore, the charges are not considered VATable as proposed," read KBA's statement in part.

Which banking services will attract VAT?

If passed into law, the Finance Bill 2024 will see banking services like issuance of credit and debit cards, telegraphic money transfer, foreign exchange transactions and cheque handling attract 16% VAT.

KBA warned that this will increase total taxation on banking services to 40% from 15%.

"This will hamper financial inclusion efforts, majorly affecting small businesses and low-income earners," said KBA.

How VAT on bank services will hit Kenya's economy

Another service to attract VAT is foreign exchange transactions, which could lead to taxation on exports.

KBA said the implication of taxing export proceeds will include hampering the competitiveness of Kenya's products and affecting foreign investments.

This will, therefore, lead to reduced foreign currency reserves and reverse the gains Kenya shilling has made against the US dollar.

The association urged the government to engage the private sector and the banking stakeholders to discuss alternative measures to raise revenue.

Are there other taxes on financial services?

The Finance Bill 2024 proposed raising the excise duty rate on fees for money transfer services provided by banks, money transfer agencies, and other financial service providers.

According to the suggestion, the rate would be increased from 15% to 20%.

This would see the cost of airtime and data rise as the government seeks to raise an additional KSh 323 billion to finance the 2024/2025 financial year budget.

Who else is opposing Finance Bill 2024 proposals

• The Association of Kenya Insurers (AKI) raised concerns about the levy, saying it will reverse the gains made in the sector.
• The Kenya National Chamber of Commerce and Industry (KNCCI) said placing a penalty of Ksh 2 million a month on businesses that make less than half of that in a year will lead to closures and job losses.

Proofreading by Otukho Jackson, a multimedia journalist and copy editor at TUKO.co.ke