Kenya: Supreme court of Kenya agrees to hear Absa appeal in a tax dispute

The Supreme Court has agreed to hear a case by Absa Bank Kenya challenging a move by the Kenya Revenue Authority (KRA) to collect payments paid to multinational credit card firms such as Visa and MasterCard in royalties.

Absa returns to court after it lost the case in 2020. The South African-based financial services company had argued that allowing the KRA to collect withholding tax would discourage card transactions for payments and in effect impose a pure cash economy. It said that, according to Business Daily, this is unfriendly to public health at the height of the Covid-19 pandemic.

“The question of whether such payments made by banks to card companies constitute royalties and whether interchange fees paid by banks are classified as management or professional fees liable to taxation and subject to withholding tax is an important one within the banking industry,” judges led by Deputy Chief Justice Philomena Mwilu said.

The court said that the tax will allow the KRA to demand payments from all banks and might create an effect that will see a rise in charges to be accepted by consumers of debit or credit cards, should banks be required to pay such taxes.

As reported by Business Daily, Absa says that withholding tax is a matter of great public importance as it affects the entire banking industry since banks will have no incentive to issue debit and credit cards if the interchange fees are liable to withholding tax.

In addition, the financial services company says that card companies will be discouraged to issue cards since the cost of card transactions is likely to increase to an all-time high.

“The decision also negatively impacts the card companies who operate the networks that enable payments through the use of credit and debit cards as it increases the cost of card transactions thus discouraging the issuance of use of cards,” Absa said in the application.