Kenya: Bank service fees held exempt from VAT, excise tax (appellate tribunal decision)

Kenya: Bank service fees held exempt from VAT

The Tax Appeals Tribunal issued a judgment in a case concerning the imposition of value added tax (VAT) on interchange fees and excise tax (duty) on lending fees and interchange fees charged by a bank when customers use debit or credit cards. The appellate tribunal held that the merchant service fees earned by issuing banks are exempt from VAT.


The case is: Barclays Bank of Kenya v. Commissioner of Domestic Taxes

The tax authority audited the taxpayer bank for the years of income 2011 to 2015, and after the audit, assessed the excise tax and VAT on interchange fees that were paid by a merchant’s bank (acquiring bank) to the issuing bank when a customer makes a purchase using a debit or credit card.

On appeal, the appellate tribunal held that merchant service fees earned by issuing banks are exempt from VAT and that when issuing banks earn interchange fees from customer purchases, these will be exempt from VAT due to their ancillary nature to services that are exempt from VAT. Further, tribunal held that exported services provided to merchants outside Kenya are not subject to excise tax because such excise tax or duty is a domestic tax chargeable to consumers in Kenya on qualifying goods and services. The tribunal concluded that lending fees and bank charges are to be viewed as interest which is not subject to excise tax.

Read a March 2021 report [PDF 129 KB] prepared by the KPMG member firm in Kenya

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