Kenya’s banking sector contributed Sh205.58 billion in taxes in 2025, marking a 5.53 per cent increase from Sh194.81 billion in 2024 and pushing the sector’s annual tax contribution above Sh200 billion for the first time.

According to the newly released Total Tax Contribution Report 2025 by the Kenya Bankers Association (KBA), the amount was contributed by 33 commercial banks and microfinance institutions, with Sh98.36 billion paid directly by the institutions and Sh107.22 billion collected on behalf of the government.

The report shows that the institutions accounted for eight per cent of total government receipts. The 33 participants, comprising 31 commercial banks and two microfinance institutions, represented 96.9 per cent of the sector’s net assets.

Their combined tax contribution also accounted for 1.80 percentage points of the projected tax-to-GDP ratio of 14.8 per cent.

KBA Chief Executive Officer Raimond Molenje said the sector’s growing tax contribution was supported by a stronger capital base and sustained growth in profits.

"The sector’s transition to a higher Total Tax Contribution baseline is therefore underpinned by a strengthening capital base, which enhanced the sector’s capacity to absorb risk, support balance-sheet expansion and mobilise customer deposits. This, together with sustained growth in profitability, enabled the sector to operate at a larger scale and make a correspondingly higher contribution to government revenues," he said.

Despite the rise in total tax contributions, banks faced higher costs in meeting tax requirements in 2025. The report shows average annual compliance cost per participating institution increased by 62.25 per cent from Sh19.10 million in 2024 to Sh30.99 million.

The report attributed the increase mainly to higher spending on external professionals, including tax advisers and advocates.

Withholding tax collected by banks on behalf of the government was a major driver of the overall increase, rising by 29.4 per cent from Sh33.97 billion in 2024 to Sh43.95 billion in 2025.

Taxes collected from people also increased by 6.4 per cent to Sh36.81 billion, while excise duty collections reached Sh23.90 billion.

However, taxes paid directly by banks fell by 1.77 per cent, even as their profit before tax increased by 17.63 per cent to Sh305.95 billion.

Corporate income tax paid by the institutions rose by 2.06 per cent to Sh70.84 billion. Despite this increase, the sector’s total tax rate declined from 38.50 per cent in 2024 to 32.15 per cent in 2025.

Beyond tax payments, the banking sector distributed Sh402.26 billion in value to key stakeholders during the period. The government received the largest share at 51.11 per cent, followed by employees at 27.75 per cent and shareholders at 21.15 per cent.

The report also showed sharp increases in withholding tax collected on specific payments. Collections on royalties rose by 159 per cent, while those on professional fees increased by 292 per cent.

KBA notes that the sector’s tax contribution has also grown over time. In 2018, banks paid and collected a combined Sh99 billion in taxes, meaning the 2025 figure was more than double the amount recorded seven years earlier.

To ease the cost of tax compliance, banks have recommended moving to a monthly withholding tax cycle, automating tax processes and introducing pre-filled tax returns to reduce the work involved in meeting filing requirements.

They also called for greater stability in the iTax and electronic tax invoice management system (eTIMS) platforms, as well as more predictable tax laws to help businesses plan and meet their obligations.