Kenyan banks are racing to implement the doubling of excise taxes on fees they levy on transactions following the signing into law of the Finance Bill 2018 in a move that is expected to significantly increase the cost of banking.
Some of the lenders, including KCB #ticker:CBK , Sidian and Diamond Trust #ticker:DTK , have notified their customers of the decision to increase charges on all transactions beginning Tuesday this week.
"In line with the Finance Act 2018, the bank has increased excise duty from 10 per cent to 20 per cent on all bank fees and commissions with effect from 25/09/2018," Sidian Bank said in a notice to its customers.
KCB and DTB also sent similar notices. The tax is applicable on the fees banks charge on transactions, including bank transfers — both local and international — over-the-counter withdrawals as well as ATM and account fees.
Banks earned an aggregate of Sh70.6 billion in fees and commissions last year, indicating that the National Treasury will raise at least Sh7 billion from the tax.
The Treasury has also increased excise tax on mobile money transfers to 12 per cent from 10 per cent while the rate on telephone and Internet data services jumped to 15 per cent from 10 per cent.
For bank customers, the higher excise duty is expected to increase the charges from a few shillings to hundreds of shillings depending on the nature and value of the transaction.
Banking services that attract fees and charges include obtaining account statements, ATM cash withdrawals and cheque clearance. Besides banks, the higher excise tax is to be charged by other financial institutions, including insurers and fund managers.
This move is expected to be particularly painful for banks who have been turning to commissions and fees to boost their profits.
This has resulted in a significant increase of revenue from these business lines that has helped mitigate the impact of narrower margins in the mainstay lending business.
Central Bank of Kenya Governor Patrick Njoroge said during the monetary policy committee (MPC) briefing that the new tax could slow down cash inflow in the economy.
Excise duty on bank charges was first implemented in August 2013 at a rate of 10 per cent with the exception of interest charges.
The Treasury had at the time sought to take a piece of the Sh32.8 billion that banks earned from operational fees and commissions annually.
All banks are expected to have implemented the 20 per cent excise duty, including those that are yet to communicate the same to their customers.
The lenders and other affected agencies have warned that introduction of higher taxes on financial services and mobile money transfers will hurt Kenya’s efforts to promote financial inclusion.
On July 1, telecoms operator Safaricom raised its mobile money transfer charges after the excise duty rose by two percentage points to 12 per cent.
The cost of withdrawing sums of between Sh501 and Sh2,500 from an M-Pesa agent, for instance, went up by between Sh1 to Sh28 while withdrawing Sh2,501 to Sh3,500 now attracts a charge of Sh50 compared to the previous Sh49.