The Kenya Revenue Authority (KRA) has been given the go ahead to add a service tax on transactions made by debit cards as it improves revenue collection initiatives.
The Court of Appeal, on Monday 9 November, ruled that the KRA had the right to tax transactions made by banks to card companies.
The judgment was made in a case in which KRA appealed a ruling in favor of a local bank that had been exempted from the transfer of interchange fee royalties.
Justices Kathurima M’Inoti, Fatuma Sichale and Wanjiru Karanja overturned the judgment of High Court Judge George Odunga and claimed that the interchange fee charged by one bank to another should attract withholding tax.
“We are convinced that the facts on record correctly established that payments made to card companies were royalties and that there were additional interchange fees for management services. Therefore, all payments were subject to withholding tax,” the appeals court judges ruled.
An interchange fee is charged by a bank to allow the money transfer from a cardholder to a company, such as a supermarket or gas station.
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