Robin Hood Tax Takes Shape in Kenya

The National Treasury and Planning Cabinet Secretary, Mr. Henry Rotich published the Finance Bill, 2018 through Kenya Gazette Supplement No. 76. The Bill through Section 31 amended the first schedule of the Excise Duty Act of 2015 by adding Section 6 which provides that:

“Excise duty on money transferred by banks, money transfer agencies and other financial service providers shall be 0.05 per cent of the amount transferred in case of money transfer of five hundred thousand shillings or more”

The section introduces what is commonly referred to as the robin hood tax (“RHT”) and also known as the financial transactions tax. RHT is a tiny tax levied on the financial sector and is said to have the potential to generate funds annually which funds can be utilized to improve public services e.g. healthcare, education, climate change etc.

The Government introduced the excise duty to enable it “get a fair share of revenue from the financial services”. In his speech, the Cabinet Secretary justified the introduction of RHT by stating that the proceeds thereof shall be utilized to finance critical government programmes. More specifically the proceeds of the RHT will be used to finance universal health care plan which is part of the “Big Four Agenda” by the Government.

To ensure the Finance Bill, 2018 raises immediate tax revenue pending parliamentary approval, the Cabinet Secretary invoked Section 2 of the Provisional Collection of Taxes and Duties Act through Kenya Gazette Supplement No. 79 of 21st June, 2018. The Act gives statutory effect for limited periods to orders of the Cabinet Secretary imposing new tax or duty. This in effect authorizes the treasury through its collecting authority to collect RHT as from 1st July, 2018 (now past).

Push back

The excise duty has however been met with opposition from various quarters including Kenya Bankers Association (“KBA”) who have filed a suit to stop the implementation of the tax. In seeking interim orders to suspend the collection of RHT, KBA argued that the move was unconstitutional as the decision was not subjected to public participation. Further, the current system used by financial institutions does not have a mechanism to implement the collection of the tax.

Implementation

With hefty penalties enforceable against financial service providers including banking institutions for lack of remittance of the excise duty, the financial sector players have been left with no choice but to implement the directive by the Government. With the implementation already rolling tax payers have been left with more questions than answers as the excise duty is being collected on all monies transferred above five hundred thousand by financial service providers. The questions taxpayers have been left to grapple with are among others whether RHT shall be deducted while paying statutory obligations such as stamp duty. Also, whether RHT shall be applied to transfers made from one account to another of the same person. Further, who should pay the duty i.e. the sender or the recipient of the funds?

In as much as the Government aims to collect revenue fast more precaution should be put in place to prevent confusion and double taxation. The Government should do more in educating the public on new legislations being enacted before the effective date especially those that shall affect their financial returns to prevent disquiet especially because Kenya is one of the top investment hub in Africa.