Banks spared headache of tracing billions tied to new money transfer fees

Justice Weldon Korir during a hearing of a petition between the council of governors versus the national treasury, controller of budget and the attoney general at Milimani Law Courts, Nairobi on December 13, 2019. PHOTO | KANYIRI WAHITO | NMG

By JOSEPH WANGUI
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Summary

• Justice Weldon Korir said it was unfair for the retroactive imposition of increased excise duty charged on fees for money transfer and other services by banks for July 1 to September 28, 2018.
• The Kenya Bankers Association challenged the retroactive implementation of amendments in the Finance Act, 2018.
• The bankers lobby claimed that under the amendments, banks were deemed to have undercharged excise duty when the amendments took effect.

Banks have been saved the pain of collecting billions of shillings from their customers after the High Court declared as unconstitutional the order backdating implementation of the law that doubled tax on money transfer and bank services to 20 percent.

Justice Weldon Korir said it was unfair for the retroactive imposition of increased excise duty charged on fees for money transfer and other services by banks for July 1 to September 28, 2018.

The Kenya Bankers Association challenged the retroactive implementation of amendments in the Finance Act, 2018. The bankers lobby claimed that under the amendments, banks were deemed to have undercharged excise duty when the amendments took effect.

The court heard that it was unconstitutional to impose excise duty from July 1, 2018 when the legislation imposing that excise duty had not been passed.

The said amendments were signed into law on September 21, 2018.

But the State through Kenya Revenue Authority (KRA) wanted the taxes to take effect on July 1, and directed banks to remit the billions not collected in the three months to end of September.

The KRA demanded that bankers either pay the uncollected tax from their profits or pursue customers for the levies.

The dispute between the banks and the KRA began after the lenders filed returns which only reflected excise duty at 10 percent and not 20 percent.

They were deemed to have committed criminal offences under sections 94 and 95 of the Tax Procedures Act, 2015.

The lenders argued that it would be difficult, if not impossible, to recover additional excise duty from their customers.

The association said during the three months, the banks were charging excise duty at 10 percent and it would be extremely difficult to identify the transactions to claim the additional levies.

The court heard that other customers may have closed their accounts or may not have sufficient deposits to cover the increased excise duty.

HISTORICAL TRANSACTIONS

Justice Korir said the commencement date for amendments is September 29, 2018.

He said the Section of the Finance Act, 2018 created an unfair imposition of tax and is unconstitutional for the levy to apply retrospectively.

The judge added that the National Assembly failed to take into account the potential detrimental effect that the imposition of an increased tax would have on the historical transactions.

“The law does not provide any guidance as to how the additional 10 percent is to be recovered from the banks’ customers,” he said.