Capital Markets

Free mobile money transfers cut banks excise duty by half


The Central bank of Kenya, Nairobi. FILE PHOTO | NMG

The Central Bank of Kenya’s order on free money transfer between bank accounts and mobile wallets cut excise duty paid by lenders by 42.2 per cent in 2020.

A study done by PricewaterhouseCoopers (PwC) on behalf of the Kenya Bankers Association (KBA) on total tax contribution of Kenya’s banking sector showed the taxes charged on bank fees and commissions declined from Sh16.1 billion in 2019 to Sh9.27 billion last year.

The Central Bank of Kenya(CBK) imposed the fee waiver in mid-March last year to reduce use of hard cash in a bid to curb the spread of the coronavirus, with some of the waivers ending in January this year.

The banking regulator, however, refused to allow banks resume charges on transfers between bank accounts and mobile money wallets when lifting the emergency moratorium.

PwC said the waiver of the fees caused an eight percent decline in total fees and commissions collected in 2020 as compared to 2019 which then meant that banks paid the taxman a lower excise total.

“The 42.2 percent decline in excise in financial services is likely to have been as a result of the waiver on fees on transfer of cash between accounts and mobile phone wallets that was as a result of the CBK initiative to protect Kenyans against the Covid-19 pandemic and arrest of coronavirus infections by encouraging Kenyan use of mobile money compared to physical cash,” said Alice Muriithi, associate director tax and transfer pricing at PwC.

Fees and commission are charged on corporate and consumer transactions which include electronic banking fees, ledger administration fees, interbank transactions among others.

The tax was introduced on lenders in 2018 triggering an increase in the cost of bank services such as transfers — both local and international, over-the-counter withdrawals as well as ATM transactions and account operating fees.

KBA has however fought to keep the charges away from fees generated while creating loans.

The taxman hit lenders including KCB, Cooperative Bank, Absa and Stanbic with tax bills on appraisal fees, loan commitment and processing fees, which the Kenya Revenue Authority claimed are subject to excise duty.

A tax tribunal however ruled that the fees are part of loan interest and are not subject to excise duty.

Last year however, lawmakers rejected a plea from bankers to exclude fees and commissions earned on loans from 20 percent excise duty.