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KRA defends backdating of taxes imposed on bank transactions

Treasury Cabinet Secretary Henry Rotich, Treasury's director of budget Geoffrey Mwau
Treasury Cabinet Secretary Henry Rotich and Treasury's director of budget Geoffrey Mwau at a past event. FILE PHOTO | SALATON NJAU | NMG 

The Kenya Revenue Authority (KRA) has defended backdating of excise tax imposed on fees charged for money transfer services and other fees charged by banks.

KRA in response to a suit filed by the Kenya Bankers Association challenging the backdating of the tax to July 1 says that lenders have not raised any constitutional breaches in their application.

The bankers’ lobby moved to court and obtained court orders restraining KRA from imposing the charges for the period July 1, 2018 to September 28, the period before the Finance Bill was signed into an Act.

“In conclusion, the 2nd respondent (KRA) submits that, it is not unconstitutional for a tax legislation to have a commencement date prior to its enactment,” says KRA in papers filed in court.

The taxman while admitting that section 32 (b) (2) of the Finance Act 2018 is retroactive in nature, claims that the same is not unconstitutional since the president has given reasons to back the amendment.

KBA moved to court on October 16 arguing that the backdating of the increased excise duty on bank transaction charges and fees charged by other financial service providers is unconstitutional.

The banks’ position is that the commencement date for these excise duties should be September 29, after it was signed into law but not July 1.

The Act introduced the 8 per cent value added tax on all petroleum products, 2 percentage rise on excise duty for mobile phone money transfers to 12 per cent and doubled the excise duty on the fees charged by banks, money transfer services, and other financial institutions to 20 per cent.

The new tax has been subject of the court battle even before it was formally signed into law.

The court had earlier suspended implementation of new taxes imposed under the Finance Bill 2018, including those on mobile money.

In September, The High Court has ruled that the Finance Bill, 2018 or any part of it cannot become law before it is taken through the legislative process.

In the ruling, Justice Wilfrida Okwany declared that the Provisional Collection of Taxes and Duties Act is "unconstitutional and therefore invalid, null and void" and that the Provisional Collection of Taxes and Duties, Order 2018, is also unconstitutional.

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