Taxing of Card Payments in Kenya: Consequences for Consumers

The Kenya Revenue Authority has been given the go-ahead to add a service tax on the debit card payments. This move means unforeseen circumstances for consumers. The move is an attempt to boost revenue collection for the taxman who has been underperforming. Taxing Card Payments Kenya

Initially, the High Court through Justice Odunga had ruled during the case of Barclays Bank(Now Absa Bank) vs KRA that the taxman was vague in requesting for withholding tax. The taxman audited the bank’s books from 2007 to 2011 and sought to tax the bank through the fees paid to card firms Visa, Mastercard and American Express for the use of their systems. The taxman argued that these fees were classified as professional and management fees and attract an income tax according to the Income Tax. Citing Justice Majanja, Justice Odunga noted that Taxing Card Payments Kenya

…the duty of the respondent in assessing tax is to identify transactions or payments that attract tax liability, especially where there are objections to such categorisation. Section 35 (1)(a) of the Income Tax Act identifies specific types of payments that attract tax; the respondent is obligated by law to state with  clarity its claim and state how the transaction falls within the terms of the statute. The respondent cannot exercise its duty like a trawler in the deep seas expecting to catch all the fish by casting its net wide. The respondent’s decision in this respect falls below this standard, and the transactions and payments caught by the decision cannot be said to fall within the statutory definition of the tax.”

However, the appellate court has now overruled this decision. In their opinion, the three-judge bench noted that and interchange fee paid by one bank to another otherwise viewed as levies should attract withholding tax. The court considers these levies as professional and management fees. Taxing Card Payments Kenya


Customers who enjoy using debit cards to make payments via POS(Point of Sale) machines at convenience stores will pay a higher service charge. When you make a payment using a debit card, you are charged for the service by your respective bank. However, your bank also pays an interchange fee to other banks when your card on other banks POS machines, among other services. Your bank also pays the card companies VISA, MasterCard and American Express for using their technology. Next time you use your debit card, the service charge will be higher. Taxing Card Payments Kenya


This move is likely to worsen the use of credit/debit cards uptake in Kenya. According to the Central Bank of Kenya, the number of debit cards in Kenya is about 10 million, while credit cards are about 320,000. Studies show that consumer attitudes are essential in nudging them to use credit/debit cards. Consumers are aware of the high fees charged on these cards and are wary of using them. Introducing additional fees is likely to pull back on the gains made by banks to attract customers to use these cards. Consumers are likely to use alternative payment methods such as Mpesa which leads the pack in payment mode alongside conventional use of cash. This is important in the COVID-19 period, where contactless payments are encouraged. The Kenya Bankers Association conducted a study on the low uptake of credit/cards in Kenya. Taxing Card Payments Kenya

The study revealed that consumers are fearful of using cards due to mistrust and media reports showing stories of the alleged fraud. Other issues included the misconception that using cards is considered an elite lifestyle. Consumers also felt that the use of cards was expensive, and there were too many hidden charges. In my opinion, it will be difficult for new customers to take up card use with the implication of higher service charges. Mobile money is likely to do better since it offers the same convenience and is cheaper. E-commerce is also expected to suffer as consumers will look to more affordable options such as Mpesa to Paypal, among others. Taxing Card Payments Kenya

Card usage in Kenya attracts a high service charge because the card-producing companies are taxed 25% of the value of the card by the taxman. In their report, KBA notes that the taxman does not have an understanding of how card valuation works and this misunderstanding trickles down to the consumer. Taxing Card Payments Kenya

So until the tax man understands how card valuation works, card usage remains an expensive payment method. It remains an elite lifestyle for the chosen few. Taxing Card Payments Kenya

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