Confusion hits banking sector as tax on fees is implemented

Updated Wednesday, July 31st 2013 at 23:33 GMT +3

By Jevans Nyabiage

Some banks have written to customers warning they may backdate a levy on transaction fees to June 18, while others say it will be implemented from today. [PHOTO: FILE/STANDARD]

Starting today, it will cost more to access banking services, with a number of commercial banks warning they will backdate the charges to June 18.

This has thrown bank customers into panic, with confusion surrounding the implementation date of the 10 per cent excise duty on fees charged by banks and financial institutions.

The lenders, through their umbrella body, the Kenya Bankers Association&searchbutton=SEARCH'> Kenya Bankers Association, had sent a statement on July 12 informing the public of the impending duty.

Backdated

However, it is not clear if the fees will be backdated, which could expose customers to huge penalties.

“KBA, on behalf of its member banks, wishes to notifybank customers and the general public that the excise duty on all such service fees will be payable to the Kenya Revenue Authority,” the lobby said then.

The service fees to be taxed include fees and commissions charged on money transfer services and other bank fees, charges and commissions, excluding interest.

Some commercial banks have written to their customers warning them that they might backdate the charges to as far as June 18, when the implementation was to start, according to KRA.

CfC Stanbic Bank, in a notice to its customers, said KBA is in consultations with KRA and the Treasury with a view to agreeing on a deferred implementation date and interpretation of certain other aspects of the Act. 

“Kindly note that in the absence of a deferred implementation date, this letter serves as notification that 10 per cent Excise Duty is chargeable to your account in respect to bank fees from June 18, 2013,” thebank said.

Yesterday, KBA said other banks had said they would implement the directive from August 1.

Ms Nuru Mugambi, the director of communications and public affairs at KBA, however, said the lobby had requested the Parliamentary Committee on Finance, Planning and Trade to amend the effective date from June 18 to August 1.

But, if this is not done, then banks and other financial institutions will backdate the charges.

She added that there is a case on the new tax pending at the High Court, meaning banks will have to wait for the outcome before they can backdate the charges or otherwise.

The Government introduced a 10 per cent excise duty on financial services and other fees charged by financial institutions effective February 1 to finance growing expenditure. The 2013/14 revenue shortfall is pegged at Sh330 billion.

The Finance Bill 2013 further clarified that “other fees” includes any fee, charge or commission charged by financial institutions, excluding interest charges.

Banking services

KRA interpreted that excise duty is applicable to allbanking services that lenders currently provide.

The banking industry, through KBA, referred the interpretation of this provision to the High Court and the matter is yet to be determined.

Tax experts at Deloitte & Touche East Africa said the overall impact of the new tax would be to increase the cost of financial services, with consumers bearing the final burden.

“To me the amount of tax that is going to be raised is not significant in the scheme of our total Budget, but the increase to business and individuals will be significant,” said Nikhil Hira, a tax partner at the consulting firm.