Kenyan Fintechs Secure VAT Exemption Following High Court Ruling
A landmark ruling by the Kenyan High Court has granted fintech companies providing payment services a significant victory, exempting them from value-added tax (VAT). This decision reverses an earlier ruling by the Tax Appeals Tribunal in a case between payment startup Pesapal and the Kenya Revenue Authority (KRA), potentially saving the sector from substantial tax burdens. The court, presided over by Justice Rhoda Rutto, determined that digital payment providers operate in a manner “functionally equivalent” to traditional banks, setting a crucial precedent for the burgeoning fintech industry in Kenya.
Implications of the Court’s Decision
The High Court’s ruling directly overturns a previous decision that allowed the KRA to pursue a KES 76.8 million ($568,000) VAT claim against Pesapal. More importantly, the August 27th ruling establishes that licensed Payment Service Providers (PSPs) are entitled to the same VAT exemptions as commercial banks and other established financial institutions. This classification is pivotal, as it legally recognizes licensed fintech operators as essential providers of financial services, rather than simply technology companies offering a service. This distinction shields the sector from considerable potential tax liabilities and levels the playing field, fostering further innovation and growth within the Kenyan fintech landscape.
This ruling marks a turning point for fintech companies in Kenya. By recognizing their integral role in the financial ecosystem, the High Court has paved the way for a more supportive regulatory environment. The decision is expected to encourage investment and further development within the sector, ultimately benefiting consumers through enhanced access to innovative and affordable financial services.
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