Treasury proposes tax on forex transactions

Times Tower in Nairobi, the headquarters of Kenya Revenue Authority.  

Photo credit: File | Dennis Onsongo | Nation Media Group

The National Treasury has proposed the introduction of value-added tax(VAT) on financial services, including forex transactions and cheque processing.

In proposals under the 2024 Finance Bill, the exchequer has amended the list of VAT-exempt services, eliminating the addition of foreign exchange transactions, including the supply of foreign drafts and international money orders from VAT.

Cheque handling including processing, clearing and settlement, including special clearance or cancellation of cheques will also attract VAT at 16 percent if the new proposals are adopted by MPs. Other financial services targeted for VAT include the issuance of securities for money, including bills of exchange, promissory notes, money, and postal orders.

Financial institutions will also levy VAT during the issuance of credit and debit cards.

The move to increase vatable financial services mirrors the exchequer’s push for higher revenues from the payments ecosystem.

Recent Finance Acts have, for instance, seen the exchequer introduce and amend excise duty on the services.

The 2023 Finance Act raised excise duty on money transfer services by cellular phone service providers or payment service providers licensed under the national payment system from 12 to 15 percent.

The exchequer however lowered duty on money transfer services by banks, money transfer agencies, and other financial service providers from 20 percent to 15 percent.

Interest in the payments ecosystem comes off the back of increased money supply in the economy in which financial services providers play a key role.

Broad money supply or M3 recorded a growth of 7.5 percent to hit Sh5.04 trillion as at the end of 2022 according to data from the Kenya National Bureau of Statistics (KNBS).

Deposit-taking institutions like commercial banks, micro-finance banks and the Central Bank of Kenya, make up major financial intermediaries.

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