Equity Bank Kenya will now pay the Kenya Revenue Authority (KRA) Sh. 1.16 billion in tax dispute, the High Court has ruled.
KRA was demanding the money as tax dispute arising from various fees earned by the lender between 2013 and 2016, which the High Court ruled was subject to excise duty. The taxman demands the bank settle the said amount, including penalties and interest.
Justice David Majanja ruled in favor of KRA after finding that loan and credit evaluation review, temporary overdrafts, un-cleared cheques, letters of credit, bank guarantees, invoices, and bill discounting fall within the definition of interest under the Income Tax Act (ITA).
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On its part, Equity Bank objected to the matter, arguing that the charges on loans provided to its customers are not interest in nature and should not be taxed. The bank termed KRA’s demands as unfair and incorrect.
A preliminary ruling by the Tax Appeals Tribunal dismissed KRA’s demands, maintaining that transaction fees charged by the lender were interest and thus exempt from excise duty, prompting KRA to appeal at the High Court.
“It (the tribunal) ought to have been guided by the plain and literal interpretation of the term (Income Tax Act) rather than borrowing the definition from a different statute,” Justice Majanja said.
