× Business BUSINESS MOTORING SHIPPING & LOGISTICS DR PESA FINANCIAL STANDARD Digital News Videos Health & Science Lifestyle Opinion Education Columnists Moi Cabinets Arts & Culture Fact Check Podcasts E-Paper Lifestyle & Entertainment Nairobian Entertainment Eve Woman Travelog TV Stations KTN Home KTN News BTV KTN Farmers TV Radio Stations Radio Maisha Spice FM Vybez Radio Enterprise VAS E-Learning Digger Classified Jobs Games Crosswords Sudoku The Standard Group Corporate Contact Us Rate Card Vacancies DCX O.M Portal Corporate Email RMS

Judges rule KRA has right to come after credit card payouts

By Kamau Muthoni | Nov 10th 2020 | 2 min read
By Kamau Muthoni | November 10th 2020
ABSA Bank on Queesway House, Mama Ngina Street, Nairobi. [Wilberforce Okwiri, Standard]

Interchange fees and trademarks on Visa cards should be taxed, the Court of Appeal has declared.

In a verdict that may now reflect on your Visa card purchases, Appeals Court judges have agreed with Kenya Revenue Authority (KRA) that payments made by banks to card companies ought to be taxed.

This, they noted, are royalties and, therefore, ought to be taxed. Overturning a judgement by High Court Judge George Odunga, Justices Wanjiru Karanja, Kathurima M’Inoti and Fatuma Sichale ruled that an interchange fee paid by one bank to another should attract withholding tax because it is a management and professional service.

The case pit Absa's predecessor Barclays Bank against KRA.

“Accordingly, we do not perceive any ambiguity in the statute that would require legislative intervention nor are we satisfied from the totality of the evidence on record that the respondent (Absa) did not understand the basis of the appellant’s demand for withholding tax as royalty for its use of the credit cards’ trademarks and logos,” they ruled.

Absa's predecessor is a member of a network set up by various credit card companies, such as Visa, Mastercard and American Express.

When a cardholder presents their card to a merchant or supermarket to make a purchase, the merchant swipes the card through a point-of-sale machines supplied by the acquiring bank, which is where KRA is seeking tax, arguing that this amounts to a service.

KRA argued that the fees Absa pays as the acquirer to the card issuer include a facilitation fee as a medium of communication between the issuers, acquirers and merchants.

Absa noted that these are its duties, which it does not have to pay for. On royalties, Absa argued that the tax law is vague. It argued that to access and use networks operated by the card firms, it had to pay transaction fees, which fall into numerous sub-categories.

KRA had carried out an audit on the lender between 2007 and 2011 and wrote to Barclays in 2012 and 2013, demanding tax for the payments.

KRA labelled the payments to the card firms as managerial fees. The taxman said the fees Barclays had paid to other banks for Visa services were liable for levies, thus payments to card firms ought to fall in the same category.

Share this story
Liquor firm directors charged with tax evasion
Thika Senior Resident Magistrate Oscar Wanyaga released the accused on Sh2 million bond each
China rejected Kenya's request for Sh32.8b debt moratorium
China is Kenya’s largest bilateral lender with an outstanding debt of Sh692 billion.