Help Stabilize the the Depreciating Kenyan Shilling, Finance Committee Urges the Kenya Bankers Association
With Kenya’s forex reserves having hit an 8-year low, and the shilling fast losing ground due to low foreign exchange inflows, a situation that has also put the Kenyan shilling under intense pressure against other major currencies, legislators now want bankers to help in stablizing the Kenyan shilling.
Speaking during an engagement with the Kenya Bankers Association (KBA) this morning, the Hon. Kuria Kimani-led Committee underscored the crucial role of the 46-Member Association in helping mitigate the situation.
“ As a Committee we are concerned that the Kenyan shilling has continued to plummet against the dollar and other major currencies. We would like to urge you to help mitigate the situation. Inasmuch as we are aware that you charged with generating profits for your shareholders, there’s need to be patriotic”, Hon. Kimani told the Association’s team led by the Chief Finance Officer, Mr. Kennedy Mutisya.
During the meeting, Committee Members also faulted some banks for exacerbating the problem through hoarding of dollars, a move they noted had posed a big challenge to importers.
In response, the Association told the lawmakers that they were not to blame on the matter as they only hold deposits on behalf of their customers.
They held that the depreciating shilling was a result of the dynamics of demand and supply for the US dollar especially. They avered that the best remedy would be for the government to urge those hoarding dollars for speculative purposes, to release them.
Last week, perturbed that if no intervention is made, the exchange rate could spiral to uncontrollable levels, the Departmental Committee on Finance and National invited the Central Bank of Kenya Governor Dr. Kamau Thugge to apprise the Committee on the steps the bank had taken to address the matter.
In his submissions, Dr. Kamau Thugge told legislators that the demand for foreign exchange had outweighed supply in most months leading to the depreciation of the shilling that has since officially crossed the Ksh150 mark against the US dollar. He argued that the Kenyan shilling had been overvalued as the country fought to maintain an artificially strong exchange rate.
At the same time, KBA has urged the Committee to consider reviewing the law to address the rising cost of administrative costs while enforcing compliance. Banks act as agents of the Kenya Revenue Authority (KRA) whereby they collect Withholding Tax on behalf of the Authority.
Asked by the Committee to share their viewpoints over the recent abandonment of mobile payments by traders who have now reverted to cash payments, the Association observed that the usage of a combative approach by KRA rather a facilitative one was proving to be counterproductive .They told the Committee that there is need to socialize Kenyans on the importance of paying taxes first, so as to encourage them to comply.
The Association which was meeting the Committee to review the performances of the banking sector in the wake of hard economic times, further called on the Committee to make legislative interventions to expand the tax base rather than rely on the traditional contributors to shoulder the tax burden.
They informed the lawmakers that the sector contributed a total of Kshs. 181.27bn, representing 8.93% of total taxes collected in Kenya in 2022. This translates to a growth of 39.94% from the previous year.
From the total tax contribution made by the sector in 2022, Kshs. 87.71bn was drawn from Corporate Income Tax, while Employee Taxes accounted for Kshs. 23bn. Additionally, the industry contributed Kshs. 70.56bn through various other taxes such as VAT and Withholding Tax excise duties.
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