Nairobi — Kenyan bankers are against a proposal by the government to introduce a 16 percent VAT on financial transactions under the Finance Bill 2024.
While VAT applies to payments for goods and services, the Kenya Bankers Association (KBA) says that bank charges are not a direct payment for anything but a cost recovery.
Since banks are not delivering any goods to customers, bank charges are not considered 'VATable', it said.
The Finance Bill 2024 seeks to introduce VAT on various financial services, including issuing credit and debit cards, telegraphic money transfers, foreign exchange transactions, cheque handling, and more.
But KBA argues that the increased cost of banking to customers will hamper financial inclusion efforts, particularly affecting low-income individuals and small businesses.
Coupled with excise duty, the total taxation on financial services would reach 40 percent, up from the current 15 percent (excise duty only), significantly impacting affordability and accessibility.
Regarding foreign exchange transactions, KBA is of the view that the proposed VAT will widen the margin charged on FX transactions.
"This poses risks to economic growth by taxing export proceeds and hindering the competitiveness of Kenyan products, adversely affecting foreign investments in the country, reversing the recovery of the tourism industry, with long-term economic impact," KBA said in a statement.
"It could further threaten the stability of our foreign currency reserves and undermine efforts to strengthen the Kenya shilling."
Furthermore, the VAT application on FX transactions would also result in increased costs, including fuel prices, reversing efforts and progress made in stabilizing the cost of living, it continued.
"KBA supports the Government's efforts to boost revenue collection to meet the many demands of our developing nation," it said.
"KBA also emphasizes the need for a balanced approach to taxation that supports public services and economic development without veering off from well-grounded banking principles and thus excessively burdening customers."
