Absa Bank Kenya Plc v Domestic Taxes (Large Taxpayers Office)
The bottom line
#Supreme Court grants certification for appeal on tax treatment of bank card fees.
What this practically means
#A bank customer challenged a tax ruling that fees paid by banks to card companies are subject to withholding tax. The Court of Appeal refused to let the Supreme Court hear the case. The Supreme Court reviewed that refusal and decided the issue is important for the whole banking industry and millions of card users. So the appeal can proceed. The Supreme Court also threw out an amended application because it was filed without permission.
Executive summary
#Questions the Court framed
#The issues the Court set itself to decide, in its own words.
- 1.Whether the amended originating motion filed without leave of the Court is properly before us.
- 2.Whether the Court of Appeal erred in declining certification of the applicant’s intended appeal to this Court.
- 3.Whether the applicant’s intended appeal transcends the issues between the applicant and the respondent and raises matters of substantial general public importance.
- 4.Whether the applicant’s intended appeal raises serious issues of law that are of general public importance.
- 5.Whether the imposition of withholding tax on a payment that is not a royalty and a payment that is not for management or professional services as defined in the Income Tax is a violation of article 210(1) of the Constitution of Kenya.
Key legal issues
#Whether the amended originating motion filed without leave of the Court is properly before the Court.
The amended originating motion filed on 3rd December, 2021 without leave of the Court is fatally defective and is struck out.
The Court noted that under Rule 17(1) of the Supreme Court Rules, a party may only file further pleadings or affidavits with the leave of the Court and with the consent of the other party. The initial originating motion was filed within 14 days of the ruling, but the amended motion was filed later without any application for leave. Since no leave was sought or granted, the amended motion is struck out.
Whether the intended appeal raises a matter of general public importance warranting certification.
The intended appeal raises a matter of general public importance and the Court of Appeal erred in declining certification.
The Court applied the principles from Hermanus Phillipus Steyn v. Giovanni Gnecchi-Ruscone and Town Council of Awendo v. Nelson Oduor Onyango & 13 others. It found that the question of whether payments made by banks to card companies constitute royalties and whether interchange fees are management or professional fees liable to withholding tax is an important one within the banking industry. The issue transcends the specific circumstances of the parties because it affects all banks and card companies, and consequently the millions of Kenyan consumers who use debit and credit cards, as well as the tourism sector and the government's ease of doing business agenda.
Legal principles established
#- Further pleadings after an originating motion in certification applications require leave of the Supreme Court, or they are fatally defective.
- A matter of general public importance transcends the specific circumstances of the parties and has substantial, broad-based public impact.
- Issues affecting an entire industry and consumers can qualify as matters of general public importance.
- The court may consider transitional political-economic-social factors and public access to utilities in determining general public importance.
- The Supreme Court can review a Court of Appeal decision declining certification if the issue meets the general public importance test.
Court orders
#- 1.The Originating Motion dated and filed on 19th November, 2021 is hereby allowed.
- 2.Parties shall bear their respective costs.
The bench
#One judgment of the whole court — no separate or dissenting opinions.
- On appeal from
- Court of Appeal at Nairobi
- Jurisdiction invoked
- Rule 33 of the Supreme Court Rules, 2020; Articles 163(4)(b), 163(5) and 210(1) of the Constitution; sections 16(1) and (2) of the Supreme Court Act
Relief refused
#The amended originating motion dated 1st December, 2021 and filed on 3rd December, 2021
Filed without leave of the Court, fatally defective.
Costs
Parties shall bear their respective costs.
Quotable passages
#Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.
we find and hold that the amended originating motion having been filed on 3rd December, 2021, without leave of the Court, is fatally defective. The upshot is that we hereby strike out the amended originating motion dated 1st December, 2021 and filed on 3rd December, 2021.
The question of whether such payments made by banks to card companies constitute royalties and whether interchange fees paid by banks are classified as management or professional fees liable to taxation and subject to withholding tax is an important one within the banking industry.
The Originating Motion dated and filed on 19th November, 2021 is hereby allowed.
Parties shall bear their respective costs.
Key timeline
#Practical implications
#Need leave for further pleadings
When seeking review of a Court of Appeal decision on certification, any further pleadings after the initial originating motion require leave of the Supreme Court. Failure to obtain leave renders such pleadings fatally defective. Lawyers must ensure compliance with Rule 17(1) of the Supreme Court Rules.
Tax treatment of interchange fees uncertain
The Supreme Court has allowed the appeal on whether interchange fees paid by banks to card companies are subject to withholding tax. Businesses in the banking and card payment sectors should monitor the final outcome, as it could affect their tax liabilities and pricing strategies. The case highlights the importance of the general public importance certification process.
Potential impact on card users
If the Supreme Court ultimately rules that interchange fees are subject to withholding tax, banks may pass on the cost to consumers through higher fees or reduced rewards. Individuals who use debit or credit cards should be aware that this case could affect the cost of card transactions. The outcome is still pending.
Frequently asked questions
#What is the Peter Mungai v. Commissioner of Domestic Taxes case about in Kenya?+
The case is about whether fees banks pay to card companies (interchange fees) are subject to withholding tax. The Supreme Court decided the issue is important enough for the whole country, so the appeal can proceed.
What does general public importance mean in Kenyan law?+
It means the legal issue affects more than just the parties in the case. It has a broad impact on the public, such as affecting an entire industry or many consumers. The Supreme Court uses this test to decide which cases it will hear.
Are interchange fees taxable in Kenya?+
The Court of Appeal said yes, they are management fees subject to withholding tax. But the Supreme Court has allowed an appeal on this issue, so the final decision is not yet made. The case is ongoing.
How does withholding tax apply to bank card fees in Kenya?+
Withholding tax is a tax deducted from certain payments. The question is whether interchange fees paid by banks to card companies are management or professional fees that require withholding tax. The Supreme Court will decide this in the appeal.
Later judgments citing this (1)
#Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.
Cite this brief
#Cite this brief
Caselaw, "Absa Bank Kenya Plc v Domestic Taxes (Large Taxpayers Office)", Case Analysis (2022). Motion 15 of 2021. Source: https://new.kenyalaw.orghttps://new.kenyalaw.org/akn/ke/judgment/kesc/2022/13/eng@2022-05-19
Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.