Taxation is a key source of finance for government expenditure and economic
development, but its effects on firms are potentially complex. In Kenya, high corporate
tax rates have been found to deter investment and slow economic growth. This issue is
particularly pertinent to the banking sector: KCB Group is one of Kenya's largest
lenders, with a network across East Africa. Yet, the impact of Kenya's corporate tax
rates on profitability at KCB Bank has to date been lightly empirically explored. This
study thus explores efficiency corporate tax rates on business profitability through a
quantitative case study of KCB Bank. The study seeks to evaluates the effects of
corporate tax rates, tax incentives, and tax compliance expenses on key profitability
measures such as net income, return on assets (ROA), and profit margin over five years.
The study is grounded on a quantitative research process guided by Agency Theory and
Taxation Theory that provide a theoretical context in which taxation behaviour and firm
performance are perceived. Secondary data were accessed from KCB Bank's audited
annual financial statements, Kenya Revenue Authority (KRA) tax return reports, and
relevant financial regulatory reports. Descriptive and inferential statistical methods,
including financial ratio analysis and regression analysis, were utilized to examine
correlation between taxation factors and profitability indicators. The results indicate a
strong correlation between corporate tax rates and KCB profitability measures. Years
with higher effective tax rates were generally associated with modest declines in
profitability ratios a finding that is consistent with previous research to determine that
increased corporate tax rates can significantly lower firm profitability. That is, the data
imposes a high correlation between financial performance and tax expense.
Nevertheless, KCB's total profit levels remained robust, which suggests that effective
tax planning and diversification of earnings sources can mitigate negative impacts of
taxes. The findings further confirm that profitability is multifaceted; drivers such as net
interest income and loan growth are crucial together with tax. Overall, bank
profitability is heavily influenced by corporate tax policy. The evidence indicates that
tax parameters must be carefully considered and taken into account by firms and
regulators alike. For example, for KCB Bank, good tax planning and compliance can
help to sustain profit margins in a high tax scenario. To policymakers, the study
recommends adjusting corporate tax rates to maintain a pro-business climate since even
the best banks' profitability reacts to tax rates. By and large, harmonizing tax policy
with financial-institution well-being is vital: banks must adopt cautious tax policies and
government must consider tax impacts on profitability to spur sustainable growth.