Stanbic Bank Kenya has won a Sh450.27 million tax fight with the Kenya Revenue Authority (KRA) over excise duty charges on money transfer commissions and advisory and custodial services in markets abroad.
High Court Judge Josephine Mongare said the taxman erred in applying excise duty on rebates received from international banks, custodial services, and money transfer commissions and rejected a decision by the Tax Appeal Tribunal (TAT) that sided with KRA.
The judge said that excise duty is not chargeable on services exported from Kenya in line with Section 7 (4) of the Excise Duty Act.
“In this case, I note that the Appellant (Stanbic Bank) introduced potential customers to international organisations who would offer investment products to them. It is therefore the international organisations that benefited from the Appellant’s services by obtaining potential customers,” Justice Mongare said.
“This means that the referral service was consumed outside of Kenya and falls squarely within the definition of exported services. Thus, the rebates or commissions obtained from the provision of such services are not subject to excise duty as stipulated under section 7 (1)(c) of the Excise Duty Act,” the judge said.
The court also faulted KRA for charging excise duty on custodial services offered by the bank including organising for settlement related to the purchase and sale of securities such as shares and bonds on behalf of non-residents, holding the non-resident investor’s securities for safekeeping and collating investment information relating to the securities, such as dividend and interest payout.
“I agree with the Appellant’s description of custodial services and that they accrue to non-resident investors, who use or consume the information collated by the Appellant outside Kenya to make investment decisions. It is my finding that excise duty is therefore not to be levied against custody fees, contrary to the Tribunal’s finding,” justice Mongare said.
The court also sided with Stanbic Bank’s stand that KRA could not tax its commissions from counter-guarantee services to international banks.
“The service of issuing a counter-guarantee was for the benefit, use, and consumption of the foreign bank which is not located in Kenya. It goes without saying that the service was not consumed in Kenya but in the jurisdiction where the international bank is located” Justice Mongare observed.
The High Court further sided with a decision by the Tribunal that blocked KRA’s quest to apply excise duty on the money transfer commission.
The dispute arose after KRA reviewed Stanbic Bank Kenya’s operations covering the period August 2015 to September 2018 and on January 24, 2019, issued an excise duty amounting to Sh818,400,584.00.
The lender objected to the decision and KRA on April 17, 2019, confirmed an excise duty assessment amounting to Sh450,271,065.44 for the period of August 2015 to September 2018, inclusive of penalty and interest.
Dissatisfied, the bank appealed to the TAT triggering a dispute that ended up in justice Mongare’s court.
KRA in its defence had maintained that sourcing clients for organisations is a local service that should be subjected to excise duty normally like any other over-the-counter service.
The taxman also contended that on advisory and custodial services to foreigners, Stanbic’s clients who obtain custodial services for items that they would put to use locally during their stay in Kenya were liable to taxation.
