New tax law proposes raising Bank charges
The costs of bank charges like ATM, account fees and over-the-counter withdrawals are set to increase after President Uhuru Kenyatta proposed to double the taxes to 20 percent from the current 10 percent.
In his proposal, the President Kenyatta’s wants to double the tax on bank transactions as contained in the memo he sent MPs explaining his rejection of the Finance Bill voted in by Parliament.
“Exercise duty on other fees charged by the financial institutions shall be 20 per cent of their excisable value,” he said in the memo.
This new tax will also affect stockbrokers, fund managers and insurance firms that charge fees for their services. Bankers say they will pass on the additional tax to consumers as the government seeks fresh revenue streams after consumers rejected the 16 percent tax on petrol.
Banks earned Sh70.6 billion from fees and commissions as well as transaction charges for loans last year, meaning Treasury will raise at least Sh7 billion from the lenders from the tax increase. Banks charge consumers varying fees on account-related transactions.
Customer transactions that generate fees include obtaining account statements, ATM withdrawals, and cheque clearance services. Lenders have been seeking to boost profits through fees and charges on consumer products and transactions to beat the rate cap law, which has seen their interest income margins thin.
In 2016, Kenya capped commercial lending rates at four percentage points above the Central Bank Rate, and set a minimum deposit rate, squeezing profit margins for banks. This has seen banks come under pressure to rely more heavily on fees, commissions and other charges to achieve the soaring earnings growth and dividends they previously enjoyed and that shareholders expect.
Experts have in the recent past pointed out that banks have been turning to commissions and fees as profit boosters, with a significant increase in these revenue lines likely to mitigate the impact of narrowed lending margins. Central Bank of Kenya in October 2016 ordered commercial banks to immediately stop charging their customers any new levies following the coming into force of the new law putting a ceiling to interest rates charges.