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Banking transactions revenue dips despite increase in fees, taxes


Latest data compiled by Kenya National Bureau of Statistics (KNBS) shows that revenue from financial transactions dipped to their lowest level in three years. GRAPHIC | NMG

Revenue collected from financial transactions dipped 26.3 percent to Sh10.1 billion from Sh13.7 billion in 2017, despite a rise in taxes in the last quarter of the year.

Latest data compiled by Kenya National Bureau of Statistics (KNBS) shows that the revenue dipped to their lowest level in three years.

Revenue from this category had been on the rise from Sh7.22 billion before touching a high of Sh13.7 billion in 2017.

The dip defied the Finance Act 2018 that was passed September last year, doubling the Excise Duty on fees charged for mobile money transfer services from 10 to 20 percent. Telephone and internet data services also had their tax jump to 15 percent.

The government was expecting to raise Sh20.2 billion from the doubled 20 percent excise tax on fees levied on banking services.

The transactions that attract fees and charges include obtaining account statements, ATM cash withdrawals and cheque clearance.

Additional charges

This effectively saw bank customers incurr additional charges on ATM withdrawals by Sh11 up to a maximum of Sh66.

Besides banks, the higher excise tax was deducted by other financial institutions, including insurers and fund managers.

The taxman, however, in the three months from September to December, did not realise the expected gain from the new levies, despite increase in the number of financial activities.

KNBS data shows, it is the traditional areas such as excise revenue collected from domestically manufactured commodities and services that grew by 12.6 percent to Sh93.3 billion in 2018.

“However, excise revenue from cigarettes and financial transactions categories declined by 1.9 percent and 26.3 percent, respectively,” notes the survey.

The performance underlines the mixed bag of fortunes that government encountered with the new tax measures that were introduced in a supplementary budget passed through a chaotic August House.

The drop in tax on financial transactions was despite the number of ATM transactions rising from 141.9 million in 2017 to 167.6 million in 2018, according to data from Central Bank of Kenya (CBK).

The number of deals settled through mobile payments such as M-Pesa, which have evolved from person-to-person cash transfer services to e-commerce platforms, also increased from 139.9 million transactions in 2017 to 155.8 million last year.

Surpassed targets

Kenya Revenue Authority (KRA) will, however, feel comfortable after taxes from airtime consumption surpassed targets, premised on Kenyans’ rising appetite for voice and data usage. It registered the highest growth at 63 percent to hit Sh26.3 billion.

The airtime taxes have primed the Treasury to surpass its performance targets for 2018/19.

Total domestic traffic increased by 26.8 percent from 44.1 billion minutes in 2017 to 55.9 billion minutes in 2018, according to KNBS data. Last year, mobile phone penetration was 103.45 per 100 inhabitants as a result of subscribers having more than one subscription, according to data from Communications Authority of Kenya.

The mixed tax performance results piles pressure on KRA to enhance its ability to meet targets.

The taxman has in recent years consistently missed the ambitious revenue targets set by the Treasury. It missed collection targets by Sh53 billion in the half year ended December 2018.

Receipts from taxes, levies, earnings from investments, rental income and fines – technically referred to as ordinary revenue – amounted to Sh722.28 billion in the first six months of the financial year against a target of Sh774.99 billion, latest Treasury statistics show.

The ordinary revenues in the July-December 2018 period were, however, Sh65.39 billion or 9.95 percent more than Sh656.90 billion in the corresponding period a year earlier, which was clouded by a bruising presidential poll contest.

Digital platforms

The taxman says it is targeting tax collections from economic activities carried out over digital platforms.

“Most transactions are moving towards digital platform and the current legislation doesn’t exclude this but needs clarification on how those transactions can be subjected to tax. We want to ensure we capture this sector and expand the tax base,” says Mr Njiraini.