The Treasury and the Kenya Revenue Authority (KRA) introduced an excise tax on money transfer services and fees charged by financial institutions for the first time through the Finance Act 2012. Now, Kenya has become one of the first countries in East Africa to introduce excise duty on services as well as goods. The Finance Act 2012 introduced a 10 per cent excise duty on 'fees charged for money transfer services by cellular phone service providers, banks, money transfer agencies, and other financial service providers'. It also provided for 'excise duty on other fees charged by financial institutions'. Confusingly, the Act did not define 'other financial service providers', 'financial institutions' or 'other fees'. The Act also did not expressly impose an obligation on the relevant financial institution or any other body to impose, collect and account for the excise duty. This confusion has since been (mostly) remedied. The Kenya Bankers Association (KBA) went to court to stop KRA from charging excise duty on money transfer services offered by banks. Insurance companies followed the banks' example and are currently in court through the Association of Kenya Insurers over the effective date. Clarity Banks sought the exclusion of interest from the charge of excise duty and the extension of the effective date to provide them with more time to adjust their operating systems. Insurance companies have protested against a lack of clarity, a high tax burden and also bearing the burden of the tax charged on fees for services rendered by other players in the insurance industry. In the Finance Bill 2013, an attempt was made to remedy some of these contentious issues. It provided that the duty 'shall be collected and paid by cellular phone service providers, banks, money transfer agencies and other financial institutions' effectively solving the problem of a lack of legal basis for the relevant persons to collect and pay excise duty on fees. Saccos still face a lack of clarity, since the Finance Bill 2013 and Finance Act 2013 refer to 'persons registered under the Sacco Societies Act, 2008' as being chargeable to excise duty. Instead, Saccos are registered under the Co-operative Societies Act, 1997 while only a few are licensed under the Sacco Societies Act, 2008. As such, it is still unclear whether Saccos will be required to charge, collect and pay taxes. Going forward, there are lessons to learn from the challenges resulting from the introduction of excise duty on services. The most important among them is that new tax legislation should be well thought out and properly drafted in order to avoid confusion. Confusion also leads to a loss of revenue by tax authorities. The writer is a manager in PwC Kenya's tax practice and a specialist in indirect tax.
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