The KCB Group has suffered a major blow after the High Court dismissed its opposition to a 305 million shilling tax claim by the Kenya Revenue Authority.
The bank had argued that the taxman had been wrong to seek to collect tax on what it called premiums for loans that were unsecured and did not attract excise duty.
Judge David Majanja upheld the tax appeal tribunal’s ruling ordering KCB to pay the amount saying the lender was not involved in the insurance business so he could claim an exemption.
The bank had blamed the Appeals Tribunal and the Kenya Revenue Authority for demanding millions arguing that the Inland Revenue had included premiums used to underwrite risks associated with unsecured loans.
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According to the lender, the premiums do not fall within the scope of other excise charges and subjecting them to tax because they were not ceded to third-party insurers was discriminatory.
“I am therefore in agreement with the court and the commissioner that the premiums earned constitute ‘other expenses’ and are therefore subject to excise duty,” the judge said.
The dispute stems from an assessment conducted on the lender’s revenue growth following the increase in the use of loans due to automation of services and mobile loans among other services which have increased the income stream.
The KRA then wrote to KCB in January 2019 stating that there was an excise duty shortfall of 655 million shillings, which included penalties and interest.
The lender objected to the assessment, arguing that the tax authorities were wrong in assuming that all income reported for fees and commissions or other charges was subject to excise duty.
The case was referred to Alternate Dispute Resolution where the parties signed a Partial Consent in December 2020 in which the Commissioner revised the taxable basis for all excise duty except margin insurance premiums. risk for loans, other costs, which has been referred to court.
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The court later ruled that the premiums the lender receives from its customers cannot be considered insurance premiums and therefore not subject to reimbursement. The court also upheld the tax assessment for excise duty amounting to 355 million shillings.
In the ruling, Judge Majanja said it was up to KCB to show that it collected insurance premiums and should benefit from the exemption.
“The appellant has not demonstrated that it carries on insurance activities and that it holds a license under the Insurance Act. I find nothing irrational in the court’s finding that the bonuses the appellant receives do not fall within the exemptions,” the judge said.