NAIROBI, KENYA: Bankers are up in arms against the government’s intention to impose new tax on bank transaction involving money transfers of Sh500,000 and above.
The Kenya Bankers Association (KBA) through lawyer Kenneth Fraser argued that the new requirements for 0.05 percent excise duty on money transactions contained in the Finance Bill 2018 is illegal and unconstitutional.
“Bankers will find it extremely difficult if not impossible to carry out transactions of over Sh500,000 if the Bill comes into effect, with the consequence of disrupting business for customers of all banks and damage to the Kenya economy,” said Fraser.
The Finance Bill 2018 was signed into law by President Uhuru Kenyatta on Friday and became operational from July 1.
Section 31 of the Act provides excise duty on fees charged for money transfer services by banks and other financial providers, and imposes a 0.05 per cent tax of the amount transferred of Sh500,000 or more.
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But KBA wants the court to delay implementation of the excise duty until such a time they will reach an agreement of what should be taxed.
“It will be impossible to comply with the new regulations given that the new excise duty will require changes to computers systems operated by banks and the process of altering the computer software to recover the tax will take at least two months,” said Fraser.
KBA has also faulted the decision arguing that there was no public participation in financial matters with regard to the introduction of the new excise duty without giving its members adequate notice.
In addition, the association claims that the Finance Bill 2018 has not provided any guidelines on how the duty is to be applied or exclusions from the duty.
Mr Fraser submitted that introduction of the new bill will negatively impact the economy and lead to erosion in investment returns between 1.0 to 5.0 percent depending on the nature of the fund and investment strategy.
“The imposition of excise duty is an infringement of the rights of the bankers to fair administrative process and a violation of the constitution,” said Fraser.
He told the court that the proposed duty will significantly hamper the Country's vision 2030 aspirations due to the unattractiveness of cost of carrying out transactions in Kenya as a result of the tax.
The bankers further contend that the provisions are ambiguous, given that it does not distinguish between money transfers and amount that should be taxed.
Mr Fraser said the government should rescind the decision to tax money transferred in line with international bank practices which promotes equity in tax provisions.