25 C
New York
Sunday, July 14, 2024

Buy now

Bankers Are Up In Arms Over 2024 Finance Bill

 

Bankers Are Up In Arms Over 2024 Finance Bill

 

Kenyans will be driven out of the formal financial services system if Parliament approves a proposal to impose value-added tax (VAT) on transactions, a banker’s lobby has warned.

The Kenya Bankers Association (KBA) told the National Assembly’s Finance and National Planning committee that the proposed increase of excise duty on financial services, from 15 percent to 20 percent, would push Kenyans to informal banking.

The Treasury is proposing through the Finance Bill 2024 to introduce VAT at the standard rate of 16 percent on some financial services.

The Bill also seeks an increase of excise duty from 15 percent to 20 percent on money transfer services charged by banks, money transfer agencies, and financial service providers.

“Imposition of 16 percent VAT will impact heavily on the issuance of credit and debit cards, telegraphic money transfer services, foreign exchange transactions, including the supply of foreign drafts and international money orders, cheque handling, processing, clearing, and settlement, including special clearance or cancellation of cheques, issuance of securities for money, including bills of exchange, promissory notes, money, and postal orders, the assignment of a debt for consideration and the provision of the above financial services on behalf of another on a commission basis,” Raymond Malonje, the acting KBA chief executive said.

“The imposition of VAT on financial services could act as a barrier to financial inclusion by making basic financial services more expensive and less accessible to most of Kenya’s population,” the official said.

The KBA said introducing VAT and excise duty increase would undermine efforts to bring more people into the formal financial system, which is essential to economic growth and poverty reduction.

Data by the Central Bank of Kenya shows that as at the end of December 2023, there were 64.02 million bank deposit accounts held by Kenyans.

“More specifically, the introduction of VAT on forex transactions in Kenya directly increases the cost of doing business for companies involved in international trade. Businesses that import goods or services will bear higher costs rippled through the supply chain leading to higher prices for individual consumers,” Mr Malonje said.

“Additionally, the introduction of VAT on these financial services goes against the international best practices around the globe where financial services are exempt from VAT.”

Mr Malonje said the imposition of the tax on financial services goes against the basic principle of VAT as the tax applies to the supply of goods and services, which does not include the supply of money.

The Treasury is proposing an increase on the excise duty rate applicable in fees charged for money transfer services by banks, money transfer agencies, and other financial service providers to 20 percent of their excisable value.

“This goes against the government’s agenda on financial inclusion. Additionally, the proposed change will result in the formal money transfer services becoming more expensive, beyond the reach of the low-income earners and Small and Medium Enterprises,” Mr Malonje said.

“As such, this might result in individuals turning to informal or unregulated channels to send and receive money. These channels often lack transparency and security, increasing the risk of fraud, money laundering, and loss of revenue for the Kenya Revenue Authority.

The KBA asked the committee to maintain the current rates, arguing that when excise duty was reduced to 15 percent from 20 percent in the Finance Bill, of 2023, it created a 26 percent increase in transactions in the banking industry.

“We had collected Sh40 billion but when the excise duty was reduced to 15 percent, we got Sh45 billion,” Mr Malonje said.

Related Articles

Recent Articles