Profits Up 17.63%, Tax Up 2.06%: Kenya's Banks Enjoy a Subsidy Nobody Has CostedProfits Up 17.63%, Tax Up 2.06%: Kenya's Banks Enjoy a Subsidy Nobody Has Costed

That gap is no accounting accident. The banks paid a record tax bill of KSh 205.58B ($1.58B) in 2025, and the Kenya Bankers Association's Total Tax Contribution Report 2025 partly blames the lag on bank money parked in tax-exempt government securities.

Our argument is simple: a tax break that size deserves a price tag, a public debate and a decision by Parliament, and right now it has none of the three.

A 17.63% profit jump, a 2.06% tax rise

Start with the numbers the banks themselves published. Corporate tax, the largest single item in the sector's bill, rose to KSh 70.84B ($545.55M) from KSh 69.41B ($534.54M). Profit before tax rose more than eight times as fast.

Had corporate tax grown in step with profit, it would have reached roughly KSh 81.65B ($628.80M) on Mwenendo's arithmetic. The difference is about KSh 10.81B ($83.23M).

Not all of that shortfall comes from tax-free bonds; timing, provisions and other allowances move the figure too, and the report does not split the effect out. But the association itself names exempt government paper as one reason, and that is enough to ask the obvious question: how much is the exemption worth?

For scale, KSh 10.81B is more than twice the KSh 5B ($38.51M) top-up the President promised the Hustler Fund before the end of the year.

The infrastructure bond shelter explained

The National Treasury sells infrastructure bonds, long-dated loans whose interest is exempt from income tax so that buyers accept a lower rate. Mwenendo reported in September when the Treasury repaid a 12-year tax-free infrastructure bond worth KSh 15.2B ($117.06M), cash that flowed straight back to institutional and retail holders.

The logic was sound when the aim was to tempt households and pension funds into financing roads and power lines. Banks, though, are among the biggest holders of government debt, and every shilling of interest they earn on this paper escapes the corporate tax that applies to their lending to businesses and families.

Compare that with how the same state treats ordinary money. A saver's fixed-deposit interest loses 15% to withholding tax before it reaches the account. A household buying an ordinary Treasury bond loses 10% of every coupon. Customer deposits grew 9.9% to KSh 6.12T ($47.13B) in 2025, and withholding tax on that interest rose with them.

The Treasury's tax-break report never mentions it

Kenya does have a tool for exactly this problem. Every year the National Treasury publishes a Tax Expenditure Report, the official list of revenue the state gives up through exemptions and special rates. The Treasury's 2025 Tax Expenditure Report puts total forgone revenue at KSh 286.5B ($2.21B) for 2024, including KSh 29B ($223.33M) of income tax breaks.

Search that report for infrastructure bonds and you will not find them. The only bond reference is a line in a table of withholding tax rates on government bearer bonds. No estimate, no range, no footnote on what the exemption on interest from infrastructure paper costs the Exchequer.

That silence matters more now than it did a year ago. The Treasury's plan to lift the tax-free pay threshold to KSh 32,333 ($249) a month would also make workers earning above KSh 50,000 ($385.06) pay more under the proposed income tax bands. A government asking middle-income payslips for more cannot leave an uncosted break for its biggest lenders off the table.

The strongest case for keeping the exemption

The defence deserves a fair hearing. Strip the exemption and banks will simply demand higher interest on infrastructure bonds, so the Treasury pays the same subsidy through a different line. On that view the exemption is a borrowing cost, not a gift, and taxing it achieves nothing except paperwork.

There is also the banks' own complaint. Their average tax compliance cost rose 62.25% to KSh 30.99M ($238,660) per institution, and they already collect KSh 107.22B ($825.72M) a year on the government's behalf. An industry that pays about 8% of all government receipts can fairly say it is not dodging its share.

Both points have weight. Neither answers the real objection. If the exemption is truly just a cheaper way to borrow, the Treasury should be able to show the sum: the rate saved on the bonds against the corporate tax given up. A subsidy that moves into the interest bill becomes visible, appears in the budget and gets voted on by MPs. A subsidy buried in a tax exemption appears nowhere. That difference is the whole point of public accounts.

What the Treasury and Parliament owe taxpayers

Responsibility here is not vague. The National Treasury under Cabinet Secretary John Mbadi decides which bonds carry the exemption and writes the Tax Expenditure Report that should cost it. Parliament's Finance and National Planning Committee will scrutinise the tax package now heading to the House.

We think three things should happen before that package is voted on. The Treasury should publish an estimate of the revenue given up on infrastructure bond interest, split by type of holder. The Finance Committee should ask for that figure at its hearings and refuse to treat the PAYE changes in isolation from it. And the next infrastructure bond should reserve the tax-free status for individuals, pension schemes and Saccos, leaving banks to bid on a taxable basis.

None of this punishes banks for profit. It asks that a profitable sector, growing on government paper, be taxed on the same footing as the teacher whose deposit interest is docked at source. Kenya can keep the exemption if Parliament decides it is worth it. What it cannot keep is a tax break nobody has priced.