KCB Group suffered a blow after the High Court dismissed its opposition to a Sh305 million tax claim by the Kenya Revenue Authority.
The bank had argued that the taxman was wrong in seeking to collect taxes on what it termed as premiums for unsecured loans and which do not attract excise duty.
Justice David Majanja upheld the decision of the Tax Appeals Tribunal directing KCB to pay the amount saying the lender was not involved in the insurance business for it to claim exemption.
The bank had faulted the appeals tribunal and Kenya Revenue Authority for demanding the millions arguing that the taxman had included premiums used to secure risks associated with unsecured loans.
According to the lender, the premiums fall outside the ambit of other fees chargeable to excise duty and subjecting them to tax because they were not ceded to third party underwriters was discriminatory.
“I am therefore in the agreement with the tribunal and the commissioner that the premiums earned constitute to ‘other fees’ and are thus subject to Excise Duty,” the judge said.
The dispute stems from an assessment conducted on the lender’s turnover growth following increased loans uptake as a result of automation of services and mobile loans among other services that increased revenue streams.
The KRA later wrote to KCB in January 2019 stating that there was an excise duty shortfall of Sh655 million, which included penalties and interests.
The lender objected the assessment arguing that the taxman was wrong by assuming that all revenues reported under fees and commission or other fees were liable to excise duty.
The matter was referred to alternative dispute resolution where parties signed a partial consent in December 2020 where the commissioner revised the taxable base for all excise duty apart from risk margin insurance premiums for loans, other fees, which was referred to the tribunal.
The tribunal later ruled that the premiums the lender receives from its customers cannot be deemed to be insurance premiums and therefore, not subject to redemption. The tribunal also upheld the tax assessment for excise duty amounting to Sh355 million.
In the ruling, Justice Majanja said it was upon KCB to demonstrate that it has been collecting insurance premiums and ought to benefit from the exemption.
“The appellant failed to demonstrate that it carries on insurance business and is licensed under Insurance Act. I do not find anything irrational in the tribunal’s conclusion that the premiums the appellant receives do not fall under the exemptions,” the judge said.