NAIROBI – The High Court in Kenya last week suspended the decision by the Treasury to levy a 10 per cent excise duty on all service fees charged by financial institutions.
In a Thursday ruling on a petition filed by the Kenya Bankers Association, Justice Isaac Lenaola ordered the Kenya Revenue Authority not to collect the tax until the case has been fully heard and determined on March 18.
“I have read the chamber summons dated February 20, 2013 together with the supplying affidavit and annexes therein and I am satisfied that there is good reason to grant interim relief pending inter parties hearing,” said Justice Lenalola.
As it embarked on a hunt for more revenue, the Treasury introduced the tax on the transaction fees last November on all money transfer services provided by banks, money transfer agencies, cellular phone providers and other financial service providers.
On February 1, 2013, the government gazetted the new tax in an amendment to the Customs and Exercise Duty Act, giving the taxman legal backing to start collecting the fees.
But the bank lobby objected in a petition filed in court on February 20 under a certificate of urgency after the tax body issued a public notice that the effective date for the remittance of the duty was January 9, 2013.
“The process of altering the computer software used by the banks to charge and recover excise duty will take between one and two months,” KBA said in its court documents, adding that it would be difficult for banks to pass the cost on to consumers since any price change for banking services has to be approved by the Central Bank.
The lobby also argued that the new tax was unconstitutional since the law allows the Treasury to tax banks’ products, not their services. It wants banks to be excluded from the list of financial institutions targeted by the new tax.
“It would not be right for me to discuss the merits and demerits of the case as it is before a court of law. The conservatory orders were initially issued on February 20 allowing both parties to argue the matters in court without either being in breach of the law. The orders were extended on Thursday,” the KBA chief executive, Habil Olaka, said in an email on Friday.
The implementation of the new levy would mean that consumers would pay more to use ATMs, to settle bills by mobile phone and to send or receive money.
Following the introduction of the new tax, players, especially mobile operators running mobile money transfer systems, announced rate hikes in their services in order to offset the cost.
Safaricom has effected an upward review of its M-Pesa tariffs.
Other players followed. yuMobile said it would introduce charges for its previously free yuCash services in order to cover the new expense.
Orange also said it would review its mobile money rates upward, saying the firm was obliged to pass the cost on to consumers.
Mobile money services have played a major role in deepening financial inclusion in Kenya, becoming an everyday necessity with more than 15 million people using the service daily.
Although the petition lodged at the High Court by the bankers association is only intended to protect bankings, none of the four mobile operators confirmed having started remitting the new tax.
Instead, most are still seeking legal advice to determine whether to begin paying or to challenge the new tax in court.
Other business sectors affected by the introduction of the new taxes include oil exploration and mining.
The Treasury has targeted the lucrative prospecting industry by imposing a 20 per cent tax on the proceeds from sale of property or shares, in respect of oil companies, mining companies or mineral prospecting of the gross amount payable.