Pesapal Wins Crucial VAT Exemption in Kenyan High Court
A significant victory for fintech in Kenya: Pesapal, a prominent digital payment provider, has successfully secured a VAT exemption following a High Court ruling. This decision reverses an earlier demand from the Kenya Revenue Authority (KRA) for Sh76.8 million ($526,000) in unpaid VAT, providing substantial relief to the company and potentially reshaping the taxation landscape for similar businesses.
# Landmark Judgement for Fintech Taxation
The High Court’s ruling clarifies that licensed digital payment providers, like Pesapal, are offering financial services. Critically, the court recognized that the method of delivery – utilizing technology – does not negate the fundamental nature of the service. This distinction is paramount. The judgement effectively limits the KRA’s ability to broadly interpret tax laws in cases involving fintech companies. The court’s decision, delivered by Justice Rhoda Rutto, reverses an earlier unfavorable ruling from the Tax Appeals Tribunal in June 2023, where the Tribunal had sided with the KRA.
This ruling represents a major win for Pesapal and could have far-reaching implications for the broader fintech industry in Kenya. It provides much-needed clarity on VAT applicability to digital payment services and should encourage innovation and investment in the sector by reducing uncertainty surrounding tax obligations. The decision restricts the KRA’s authority to interpret tax regulations expansively in matters concerning the fintech industry.
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