Business

Why proposed law might hike cost of banking

Monday, May 13th, 2024 08:38 | By
President William Ruto. PHOTO/PCS
President William Ruto. PHOTO/PCS

The cost of doing business in Kenya is poised to increase significantly following changes outlined in the recently released Finance Bill.

Among these changes is the removal of VAT exemption on various banking services, which will lead to higher expenses for businesses and consumers alike.

Under the new regulations, VAT will now be imposed on the provision of banking services such as taking advances or granting credit, which includes loans. Additionally, VAT will apply to cheque handling, processing, clearing, and settlement, as well as the issuance of credit and debit cards.

Other affected services include telegraphic money transfers, foreign exchange transactions, and the management of unit trusts or collective investment schemes registered by the Capital Markets Authority and managed by the trustees of the scheme.

Increased fees

These changes are expected to have a significant impact on businesses and individuals relying on banking services. The imposition of VAT on such services will result in higher costs, potentially affecting profitability and affordability. Moreover, consumers may face increased fees and charges for various banking transactions, further exacerbating the financial burden.

The removal of VAT exemption on banking services signals efforts to broaden the tax base and increase revenue collection. However, it also highlights the challenges faced by businesses in an environment of rising operating costs and economic uncertainty.

The Finance Bill has introduced several changes, one of which includes the requirement for Kenyans to provide their Kenya Revenue Authority (KRA) PIN for various transactions. Among these transactions is the registration of an employee who works remotely outside Kenya for an employer in the country.

Individuals need a KRA PIN for registering a business name and a company, obtaining trade licensing, importing goods, and customs clearing and forwarding.

Those engaging in business transactions with government ministries and agencies, registering mobile cellular Pay Bill and Till Numbers, or conducting business over the internet or electronic networks, including digital marketplaces, also require a KRA PIN.

Electricity connections

KRA PINs are also necessary during the registration of titles and stamping authorities, as well as when paying deposits for Kenya Power electricity connections.

Similarly, they are required for seeking approval of development plans and paying water deposits.

Professionals belonging to various professional bodies must also furnish their PINs during registration or renewal of membership.

While the requirement for KRA PINs may add an additional step to certain transactions, it serves to strengthen accountability and transparency in financial dealings.

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