Equity Bank has suffered a blow after the High Court allowed Kenya Revenue Authority to collect Sh234 million tax claim against it.
Justice David Majanja dismissed the appeal filed by the bank, saying the conclusions reached by the Tax Appeal Tribunal are reasonable.
The bank had appealed against a judgment of the tribunal that upheld KRA’s decision to charge the Bank PAYE on Employee Stock Ownership Plan (ESOP).
“I do not find any reason to interfere with the tribunal’s decision in each instance as the conclusions reached were within the law,” Justice Majanja said.
KRA had carried out a tax compliance audit of the bank’s records with regard to corporation tax for the year of income 2015, excise duty for the period covering August 2013 to December 2015 and PAYE taxes for the year of income 2016.
It issued an assessment on June 21, 2017 for Sh1.7 billion inclusive of penalties and interest being Sh346,147,520 on account of corporation tax, Sh234,138,308.00 PAYE and Sh1,158,683,449 excise duty.
Equity objected to the assessment and lodged its appeal.
The tribunal considered the matter and set aside the commissioner’s tax assessment in respect of corporation tax in the sum of Sh346,147,520 but upheld the assessment in respect of PAYE in the sum of Sh234,138,308.
KRA had argued that the bank operates an ESOP where employees are given an opportunity to acquire the bank’s shares at discounted prices.
According to KRA, the Income Tax Act states that if an employee opts to exercise that option, a taxable benefit is conferred similar to any other employment benefit as access to the benefit is only granted as a result of one’s employment, thus can only be classified as a benefit of employment and is then subject to PAYE.
The High Court, in upholding the judgment of the tribunal, agreed with the submissions of the commissioner and held that the ESOP confers a benefit to an employee and that arises from the fact that value of shares, whether or not they are issued at a discount, would ordinarily appreciate at the time of vesting.
“I find and hold that the tribunal did not err in concluding that Equity, as an employer, should deduct and remit to the commissioner tax on staff benefits under Section 37 of the ITA. It, therefore, made the correct finding that Equity Bank is liable for PAYE on the ESOP benefit to its employees,” the judge ruled.