Kenya’s banking sector contributed a record Sh205.58 billion in taxes in 2025, driven by a sharp rise in withholding tax that pushed the industry’s total tax contribution above the Sh200 billion mark for the first time.
The contribution by 33 banks and microfinance institutions rose 5.53 per cent from Sh194.81 billion in 2024, according to the Kenya Bankers Association’s Total Tax Contribution Report 2025.
The report shows that taxes collected by banks on behalf of the government exceeded taxes directly borne by the lenders for the first time since the study began.
Banks collected Sh107.22 billion in taxes during the year, a 13.24 per cent increase from Sh94.69 billion in 2024.
Taxes directly borne by the institutions, including corporate tax and irrecoverable value added tax, declined 1.77 per cent to Sh98.36 billion from Sh100.12 billion.
“The Total Tax Contribution has been delivered within an increasingly demanding tax compliance environment. In 2025, banks made an average of 45 tax payments each month and devoted approximately 103 business hours per month to tax compliance activities,” said Kenya Bankers Association CEO Raimond Molenje.
Withholding tax emerged as the biggest driver of the increase in revenue remitted to the government.
Withholding tax collections jumped 29.4 per cent to Sh43.95 billion from Sh33.97 billion in 2024, overtaking employment-related taxes to become the second-largest component of the banking sector’s total tax contribution.
The increase was partly driven by changes introduced under the Tax Laws (Amendment) Act, 2024, which expanded the definition of royalties and brought a wider range of payments within the withholding tax framework.
Withholding tax collected on royalties increased 159 per cent, while collections on professional fees surged 292 per cent. The latter reflected increased spending by banks on core banking system upgrades and related technology infrastructure.
Withholding tax on interest also grew by about nine per cent, supported by an expanding customer deposit base despite lower funding costs.
The report shows that customer deposits grew 9.9 per cent to Sh6.12 trillion in 2025, providing a larger base for interest payments subject to withholding tax.
The growth in tax collections came as the government continued to rely on a relatively small number of large taxpayers to support revenue mobilisation.
The 33 institutions covered by the study represented 96.9 per cent of the banking sector’s net assets and accounted for about eight per cent of total government receipts in 2025.
Corporate tax remained the largest single component of the banks’ total tax contribution, rising 2.06 per cent to Sh70.84 billion from Sh69.41 billion in 2024.
However, the increase was modest compared with the sector’s 17.63 per cent growth 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.
Meanwhile, irrecoverable VAT, which banks cannot offset against output VAT, declined 10.64 per cent to Sh13.65 billion from Sh15.27 billion.
The decline contributed to a reduction in taxes directly borne by the lenders despite higher profitability.
Employment-related taxes collected by banks rose 6.4 per cent to Sh36.81 billion from Sh34.59 billion.
These include Pay As You Earn, employee National Social Security Fund contributions, the Affordable Housing Levy and Social Health Insurance Fund deductions.
The increase reflected the full-year impact of the housing levy and health insurance contributions, alongside higher NSSF contributions following revised rates introduced in February 2025.
Excise duty collections also recovered, increasing 5.46 per cent to Sh23.90 billion from Sh22.66 billion. The report linked the growth to a recovery in lending activity, which typically increases transaction volumes and fees charged on financial services.
Despite the increase in the overall tax contribution, banks are decrying mounting compliance costs.
The average annual cost of tax compliance per participating institution rose 62.25 per cent to Sh30.99 million in 2025 from Sh19.10 million in the previous year.
Banks spent an average of Sh20.22 million each on external tax consultants, including tax advisers and advocates, as they dealt with increasingly complex filing requirements and changes in tax legislation.
The institutions also devoted an average of 103 business hours each month to tax compliance and made about 45 tax payments monthly, equivalent to roughly three full-time employees handling tax-related work.
“These findings point to the need for continued collaboration between policymakers, revenue authorities and taxpayers to simplify reporting obligations, improve the functionality and integration of digital tax platforms, and create a more predictable tax environment,” said PwC Kenya partner for tax and legal services Alice Muriithi
Banks rated the complexity of tax filing requirements at 3.19 out of five, indicating that compliance remains moderately difficult.
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 digital platforms such as iTax and eTIMS have also increased operating costs.
The Kenya Bankers 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 the tax platforms.
Between 2018 and 2025, the sector’s total tax contribution more than doubled from Sh99 billion. Over the same period, total net assets grew 89.42 per cent to Sh8.35 trillion, while total capital increased 83.52 per cent to Sh1.26 trillion.
