HANDS OFF — FOR NOW

A Kenyan court sides with the banking sector after government introduces vague legislation about a ‘Robin Hood’ tax on bank transfers

Kenya’s high court has put on hold a controversial new government tax on money transferred by banks in that country. The new tax was announced in June by Kenya’s cabinet secretary for national treasury, Henry Rotich. But when members of the Kenya Bankers Association could not get clarity from the government on the meaning of crucial phrases in the proposed law, they went to court.

Sitting in the constitutional & human rights division of the high court in Nairobi, Wilfrida Okwany has now agreed to a temporary order, suspending the new tax from coming into effect pending a full hearing in September.

The judge heard that when the new “Robin Hood” measures were announced by Rotich, bankers realised they would have to change the software operating their banking systems.

Previously the government had levied a duty on the fee charged by the bank providing money transfer services. The new tax, however, imposes duty on the amount of money transferred and major changes have to be made to software.

The new legislation should have come into effect on July 1, but the bankers said this did not give them enough time to prepare. The CEO of the bankers’ association, Habil Olaka, wrote to Rotich on June 29 raising “grave concerns” about the proposed legislation but his letter “never elicited any response”. Unable to move forward, the association asked the court to suspend implementation of the new tax.

In Olaka’s letter he told Rotich the banks would need between three and six months to adjust their systems to comply with the new tax. The banks had asked the service providers of the computer systems they use, most of whom are not based in Kenya, to respond to the demand presented by the new tax, and, said Olaka, “we will forward these … to your office as we obtain them”.

Because of the delay in sourcing and changing banking software, Olaka added, “we are seeking deferral” of the starting date for the new tax. He also noted “with profound concern” that the new bill gave no guidelines on key questions and definitions.

Kenya’s attorney-general, as well as the revenue authority, opposed any suspension, saying the government would lose substantial tax revenue if it were allowed. But the judge referred to the ambiguous phrase “money transferred by banks”, and said it seemed the government expected the banks to implement the proposed tax “without clarification and based on their own individual interpretation” of this phrase.

The government argued that the banks had begun informing customers about the new duty which meant “they already understood” the provision. But, said the judge, just because some customers had been notified that a change was in the offing did not mean clarity had been obtained.

A “plain reading of the impugned paragraphs shows that they refer to different items of taxation” and implementing the new duty on money transferred by banks could not “be left to guesswork or individual interpretation”.

Government’s cut

The brief respite provided by this decision will be welcomed in Kenya, where many predicted the new duty would drive people back to “pillowcase banking”.

Announcing the tax, Rotich said that government “wanted its cut” of the rapidly increasing mobile money business: “For the government to get a fair share of revenue from these financial activities and to finance critical government programmes, I propose to introduce a ‘Robin Hood tax’ of 0.05% on $5,000 or more transferred through banks and other financial institutions.”

Once implemented, the new tax could prove highly lucrative. According to government figures, transactions of about $17bn were recorded between October and December 2017 alone.

Many predicted the unpopular new duty would drive people back to ‘pillowcase banking’