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Absa loses Supreme Court pressure in tax duel over credit card charges


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Absa loses Supreme Court pressure in tax duel over credit card charges


Absa Headquarters in Westlands, Nairobi. PHOTO FILE | NMG

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Summary

  • Last year, the lender lost an appeal after a bench of three judges ruled that payments made by the bank to credit card companies were royalties and, therefore, subject to withholding tax .
  • Dissatisfied with the decision, Absa returned to the Court of Appeal to be allowed to challenge the decision in the Supreme Court.

Absa Bank #ticker: ABSA lost bid to challenge Court of Appeal ruling allowing Kenya Revenue Authority (KRA) to collect a share of billions of shillings paid to multinational credit card companies such as Visa and MasterCard as royalties.

Last year, the lender lost an appeal after a bench of three judges ruled that payments made by the bank to credit card companies were royalties and, therefore, subject to withholding tax .

Dissatisfied with the decision, Absa returned to the Court of Appeal to be allowed to challenge the decision in the Supreme Court.

Justices Roselyn Nambuye, Patrick Kiage and Jamila Mohammed, however, dismissed the plea, saying there was nothing in Absa’s second appeal that was of great public interest or required constitutional interpretation for the speech of the Supreme Court.

“In the circumstances, we find that the issues raised by the applicant in the proposed appeal to the Supreme Court are only facts which were disputed between the parties and do not transcend the circumstances of the case,” said the judges.

The KRA and the bank had been at odds for nine years over whether payments made to multinationals were royalties, which meant Absa had to deduct 20% tax.

This means that the KRA could push Absa to pay back taxes for the nine years that could run into billions of shillings in a lawsuit that will impact Kenya’s banking sector.

In 2012, the KRA demanded withholding tax on payments that Absa made to Visa International Services Association, MasterCard Inc and American Express Ltd as well as those made by Absa to other banks in so called interchange fees.

Fees are charged by banks for processing and accepting card transactions on behalf of their competitors. The IRS in its claim argued that payments to card companies were royalties, while rival local banks’ fees were for professional or management services.

Absa argued that the payments to the three card companies were not royalties and that the KRA had no reason to require withholding tax.

Absa challenged the KRA’s decision in court, arguing it was illegal and unreasonable.

High Court Judge George Odunga in 2015 agreed with the bank and quashed the request, saying it did not meet the required level of clarity in tax matters. The judge considered that the tax authorities had not clearly identified the category in which the tax claimed fell.

The KRA appealed the ruling, arguing that the bank was required to pay withholding tax resulting from its relationships and transactions with credit card companies.

The tax authorities felt that the relationship between Absa and the card companies was reflected in the membership and brand license agreement, which granted the bank permission to use the brands of the card companies.

And besides, Absa was obliged, as a withholding agent, to withhold the 20% tax due on payments made to multinational card companies.


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