Record Tax Bill: Kenyan Banks Pay KSh 205.58B ($1.58B) as Withholding Tax Jumps 29.40%Record Tax Bill: Kenyan Banks Pay KSh 205.58B ($1.58B) as Withholding Tax Jumps 29.40%

The Kenya Bankers Association said in its Total Tax Contribution Report 2025 that the total was up 5.53% from KSh 194.81B ($1.50B) in 2024. The study covers 33 banks and microfinance institutions holding 96.9% of sector net assets, and the sector accounts for about 8% of total government receipts.

Collecting for government now outweighs paying directly

Taxes that banks collect on behalf of government rose 13.24% to KSh 107.22B ($0.83B) from KSh 94.69B ($0.73B). That now exceeds the taxes banks bear directly, which fell 1.77% to KSh 98.36B ($0.76B) from KSh 100.12B ($0.77B). The association says it is the first time since the study began that collected taxes have outweighed borne taxes.

Corporate tax, the largest single component, rose 2.06% to KSh 70.84B ($0.55B) from KSh 69.41B ($0.53B). That lagged growth of 17.63% in profit before tax, a gap the report partly attributes to investment in tax-exempt government securities.

Irrecoverable VAT fell 10.64% to KSh 13.65B ($0.11B) from KSh 15.27B ($0.12B).

Withholding tax leaps after the law change

Withholding tax rose 29.40% to KSh 43.95B ($0.34B) from KSh 33.97B ($0.26B), making it the second-largest component and overtaking employment-related taxes. The Tax Laws (Amendment) Act, 2024 widened the definition of royalties and brought more payments under withholding tax.

Withholding tax on royalties rose 159% and on professional fees 292%, which the report links to bank spending on core banking upgrades and technology. Withholding tax on interest rose about 9%, as customer deposits grew 9.9% to KSh 6.12T ($47.12B).

Mwenendo earlier reported on how withholding tax erodes real deposit returns for savers; the same levy is now a fast-growing line in the banks' own tax bill.

Employment and excise taxes

Employment-related taxes rose 6.4% to KSh 36.81B ($0.28B) from KSh 34.59B ($0.27B). They include PAYE, employee NSSF contributions, the Affordable Housing Levy and Social Health Insurance Fund deductions, and the rise reflects a full year of the housing levy and health contributions plus NSSF rates revised in February 2025.

Excise duty rose 5.46% to KSh 23.90B ($0.18B) from KSh 22.66B ($0.17B), which the report links to recovering lending activity.

Compliance costs climb

The average annual compliance cost per institution rose 62.25% to KSh 30.99M ($0.24M) from KSh 19.10M ($0.15M). Banks spent an average of KSh 20.22M ($0.16M) each on external tax consultants.

Banks made about 45 tax payments and spent about 103 business hours a month on compliance, roughly the time of three full-time employees. They rated filing complexity at 3.19 out of 5. The burdens they cite include the five-day deadline to file and pay withholding tax, frequent tax law changes, and reconciliation problems between the iTax and eTIMS platforms.

The association recommends a return to monthly withholding tax filing and payment, more automation, and better integration and stability of tax platforms.

KBA chief executive Raimond Molenje said: "The Total Tax Contribution has been delivered within an increasingly demanding tax compliance environment." Alice Muriithi, PwC Kenya partner for tax and legal services, said the findings point to the need for continued collaboration between policymakers, revenue authorities and taxpayers.

Seven years of growth

Between 2018 and 2025 the sector's total tax contribution more than doubled from KSh 99B ($0.76B). Over the same period net assets grew 89.42% to KSh 8.35T ($64.29B) and total capital grew 83.52% to KSh 1.26T ($9.70B).

As Mwenendo earlier reported, Treasury bond buyers also lose 10% of coupon income to withholding tax, one more channel through which the levy reaches households.