Absa Kenya returns to court to challenge tax dispute

Absa Bank Kenya has once again found itself in a legal battle with the Kenya Revenue Authority (KRA) over the taxation of royalties paid to multinational credit card companies like Visa and Mastercard. The dispute, which dates back to 2020, centers around whether background charges paid to credit card companies should be subject to value-added tax (VAT) and withholding tax. The bank recently sought permission to appeal to the Supreme Court after a series of court decisions did not rule in its favor. The implications of this case extend far beyond Absa Bank Kenya and could have a significant impact on the entire banking industry in the country. If the Supreme Court rules in favor of KRA and upholds the decision to collect withholding tax on these charges, it could discourage credit transactions for payments and potentially lead to a shift towards a cash economy. This move would be counterproductive to the government's efforts to promote digital payments and financial inclusion. James Mbugua, a legal and policy consultant, shed light on the complexities of the case in an interview with CNBC Africa. He explained that the dispute arose from differing interpretations of tax laws between taxpayers and the revenue authority. Mbugua highlighted the challenges faced by corporates in navigating tax regulations, which are often ambiguous or outdated, leading to disputes that end up in the courts. The crux of the matter lies in the argument put forth by Absa Bank Kenya that collecting withholding tax on these background charges would increase transaction costs for customers and merchants, making cash transactions more appealing. The bank contends that subjecting these charges to tax would disincentivize the use of credit cards and hinder the growth of digital payments in the country. On the other hand, KRA maintains that these charges should be taxable, which would boost its revenue collections. The Supreme Court now has the challenging task of weighing the arguments presented by both parties and making a decision that will have far-reaching consequences for the banking sector. As the case unfolds in the highest court of the land, stakeholders in the banking industry are closely watching the proceedings. The outcome of this legal battle will not only set a precedent for future tax disputes but also shape the landscape of digital payments in Kenya. If Absa Bank Kenya's appeal is successful, it could pave the way for a more favorable tax regime for financial institutions and encourage innovation in the sector. In conclusion, the Absa Bank Kenya tax dispute is emblematic of the broader challenges faced by businesses in navigating complex tax laws and regulations. The outcome of this case will not only impact the bottom line of the banking industry but also influence consumer behavior and the country's transition towards a cashless economy.