Citibank fails in bid to quash Sh127 million tax demand

A man walks by a Citibank branch at the US bank Citigroup world headquarters on Park Avenue, in New York. FILE PHOTO | AFP

Citibank Kenya Branch has suffered a blow in a bid to quash a tax demand of Sh127 million arising from income services offered to the United Nations and its agencies in 2013.

High Court judge David Majanja said the Kenya Revenue Authority (KRA) was entitled to charge and collect excise duty in respect of "other fees" from January to July 2013, in so far as the same did not include interest.

Documents filed in court showed that the taxman demanded the amount from Citibank Kenya in October 2018, as a principal amount of Sh73 million, plus penalties and interest.

Justice Majanja said he cannot see how Citibank can claim it is not a financial institution yet it renders financial services for which it is licensed.

“I, therefore, hold that the commissioner was entitled to charge excise duty of ‘other fees’ at a rate of 10 percent upon enactment of the Finance Act, 2012,” the judge said.

The judge said KRA was entitled to charge excise duty on the lender’s financial transactions as long as they constituted fees.

The lender had admitted owing KRA Sh608,317 and it informed the court that the amount was paid.

However, Citibank contested the Sh127 million saying it was wrongly computed and that KRA had applied the Finance Act of 2013 retrospectively.

KRA says it conducted an excise duty assessment of the bank’s records between 2013 and 2015 and communicated its findings in September 2018.

The demand was quashed by the tax appeals tribunal, which also allowed Citibank to initiate the process of recovering Sh57.2 million, paid as excise duty for charges levied on the UN and its agencies.

The KRA appealed against the decision and sought the court’s interpretation and application of excise duty on various bank transactions under the Customs and Excise Act and Finance Act of 2015.

The taxman argued that the tribunal misdirected itself in finding that Citibank had erroneously paid excise duty in respect of services to the United Nations without any evidence.

The KRA was also aggrieved about the tribunal’s verdict that it should not deduct commission income from excisable income earned by Citibank from a Kenya Pipeline Company syndicated loan.

The court was informed that in 2015 and 2016, Citibank earned Sh66.8 million in commission and Sh58.4 million, respectively.

The court said the lender did not submit any primary documents to support its assertion that the syndicated loan payment of Sh66.8 million related to 2015 and that of Sh58.6 related to 2016.

“In the absence of this proof, the commissioner could not be faulted for treating these transactions as a single transaction,” the judge said.

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