The Kenya Bankers Association reported a record Ksh 205.58 billion in taxes contributed by banks and microfinance institutions in 2025, even as compliance costs rose sharply amid complex filing requirements and frequent changes to tax laws.

The industry’s total tax contribution rose 5.53 per cent to Sh194.81 billion in 2024, according to the association’s Total Tax Contribution Report 2025, which covered 33 financial institutions.

The report shows that the average annual tax compliance cost per participating institution increased by 62.25 per cent to Ksh 30.99 million from Sh19.10 million in the previous year, reflecting the growing administrative demands placed on lenders.

Banks also spent an average of Sh20.22 million each on external tax consultants, including tax advisers and advocates, as they sought to manage increasingly complex tax obligations.

The institutions made an average of 45 tax payments every month and devoted approximately 103 business hours to tax compliance activities. The workload was equivalent to roughly three full-time employees handling tax-related duties at each institution.

The findings highlight the dual role played by banks in Kenya’s tax system, both as taxpayers and as collection agents for the government.

Of the Ksh 205.58 billion contributed in 2025, Sh107.22 billion was collected by banks from employees, customers and other parties on behalf of the government. This was a 13.24 per cent increase from Sh94.69 billion in 2024.

Taxes directly borne by the institutions, including corporate income tax and irrecoverable value added tax (VAT), declined by 1.77 per cent to Sh98.36 billion from Sh100.12 billion.

The increase in taxes collected on behalf of the government was largely driven by withholding tax, which rose 29.4 per cent to Ksh 43.95 billion from Ksh 33.97 billion.

The report linked the growth partly to changes introduced under the Tax Laws (Amendment) Act, 2024, which expanded the definition of royalties and widened the range of payments subject to withholding tax.

Withholding tax collections on royalties increased by 159 per cent, while collections on professional fees surged 292 per cent. The increase in professional fees was associated with banks’ spending on core banking system upgrades and related technology infrastructure.

Withholding tax on interest also grew by about nine per cent, supported by a larger deposit base. Customer deposits increased 9.9 per cent to Sh6.12 trillion in 2025.

Corporate tax remained the largest single component of the sector’s total tax contribution, rising 2.06 per cent to Sh70.84 billion from Ksh 69.41 billion.

However, this growth was below the 17.63 per cent increase in profit before tax. The report attributed the difference partly to increased investment in tax-exempt government securities, which affected the proportion of profits subject to corporate tax.

Employment-related taxes collected by banks rose 6.4 per cent to Ksh 36.81 billion, while excise duty collections increased 5.46 per cent to Ksh 23.90 billion.

The association has called for a return to monthly withholding tax filing and payment cycles, greater automation of compliance processes and improved integration and stability of digital tax platforms.

The report identified the requirement to file and pay withholding tax within five days as a major administrative burden. Frequent changes in tax legislation and reconciliation challenges involving iTax and eTIMS were also cited as factors increasing operating costs.

KBA chief executive Raimond Molenje said the sector was operating in an increasingly demanding tax compliance environment, while PwC Kenya partner for tax and legal services Alice Muriithi called for simpler reporting obligations and more reliable digital systems.

The 33 institutions covered by the report represented 96.9 per cent of the banking sector’s net assets and accounted for approximately eight per cent of total government receipts in 2025. The sector’s total tax contribution more than doubled from Ksh 99 billion in 2018, while net assets grew 89.42 per cent to ksh 8.35 trillion.