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Bulk bank transfers fall on tax tiff



Market News

The Central Bank of Kenya (CBK) building in Nairobi. FILE PHOTO | NMG 

Bulk payments through commercial banks fell by nearly seven per cent or Sh154.6 billion in August compared to the previous month, data from the Central Bank of Kenya (CBK) shows.

The reduction in transactions came at a time of an increase in mobile money transactions but also uncertainty over a new Robin Hood tax supposed to have taken effect on July 1. The tax — of a 0.05 per cent on bank transfers of Sh500,000 and above law — is currently in limbo after bankers went to court to oppose it. Analysts point out that the performance of the economy as witnessed in poor corporate financial results, retrenchments and high unemployment have also contributed to depressed large cash transfers.

Banks transferred Sh2.43 trillion in August compared to Sh2.58 trillion in July, the first reduction since March.

“Besides uncertainty in the new law on cash transfers, the performance of the economy hasn’t been very good. Again, people realise that you can still transfer large sums through the mobile phone,” said Mercyline Gatebi-Kyalo, a research analyst with Nairobi-based Kingdom Securities.

As the RTGS transaction value fell in August, the amount transferred through mobile money rose by five per cent to Sh348.91 billion compared to the previous month.

The RTGS system moves bulk cash amounting to Sh1 million and above following outlawing of such transactions through cash and cheques.

Under RTGS, real-time transfers are cleared and settled on a continuous basis as banks accounts are credited or debited using reserves held with the CBK.

In March, the amount stood at Sh2.24 trillion, hitting a peak in July. In the months preceding March, the amounts stood at Sh2.23 trillion and below.

The Kenya Bankers Association moved to court in October arguing backdating the excise tax is unconstitutional. With the case still in court, it means the tax can still not be applied.

Shortly after the Treasury’s proposal, analysts said the excise tax was not only a shift from the accepted norm of imposing it on consumption but would also have an impact on the cost of financial services.

“While the government will collect more revenue from this measure, it appears to be a shift from the established and accepted norm of excise duty as a tax on consumption.

“We expect the proposal to have an incremental impact on the cost of financial services and perhaps dampen the pace of investment,” PwC said in its analysis of Budget proposals.