The Court of Appeal has ruled that interchange fees and trademarks on Visa cards should be taxed.
The ruling that favors the Kenya Revenue Authority (KRA)means that payments will reflect on transactions made by card holders and that payments made by banks to card companies will also be taxed since they are royalties.
The Appeal court overturned the ruling by High Court Judge George Odunga.
The Court of Appeal judges Wanjiru Karanja, Kathurima M’Inoti and Fatuma Sichale noted that an interchange fee paid by one bank to another will attract withholding tax since it is both a management and professional service.
The eight year old case was between Absa (formerly Barclays Bank) and the Kenya Revenue Authority which had appealed the High court ruling that barred from collecting such taxes.
The predecessor (Barclay Bank) was member of several credit companies including Mastercard, American Express and Visa.
Absa losing the KRA’s appeal means the taxman will reap from all those trademarks.
“Accordingly, we do not perceive any ambiguity in the statute that would require legislative intervention nor are we satisfied from the totality of the evidence on record that the respondent (Absa) did not understand the basis of the appellant’s demand for withholding tax as royalty for its use of the credit cards’ trademarks and logos,” Court of Appeal ruled.
The ruling means that whenever cardholder makes a transaction, the merchant swipes the card through a point-of-sale machines supplied by the acquiring bank.
KRA argues that it amounts to service and that is the point where the tax is imposed.
The taxman added that what Absa pays as the acquirer to the card issuer include a facilitation fee as a medium of communication between the card issuers, acquirers and merchants.
KRA won a battle that nearly lasted a decade with the bank as it remains set to make billions of shillings paid to multinational credit card companies.
Absa will now be required to deduct 20% as tax to help the authority that has turned into a looting den with several scandals. It is always failing to hit its tax collection target.