Payment Services provider PesaPal has suffered a setback in a KSh232.2 Million tax dispute with the Kenya Revenue Authority (KRA).
The Tax appeal tribunal threw out an appeal filed by PesaPal after the Commissioner of Domestic Taxes slapped it with Sh232.2 million in tax arrears. In court papers seen by this publication, Pesa Pal had argued that the Commissioner of Domestic Taxes erred in law by charging VAT on the commission it earned.
“The commission is earned as a consideration for providing financial services which are exempt from VAT in accordance with the first schedule part 2 paragraph 1 (m) of the VAT Act, 2013,” said PesaPal in its Memorandum of Appeal dated 5 January last year.
In its prayer to the tax tribunal to rule in its favour, PesaPal argued that it provides a financial service on behalf of its merchants on a commission basis and as such the commission is exempted from VAT by the First Schedule of the VAT Act 2013.
PesaPal also submitted bank statements from Kenya Commercial Bank showing that it was dealing with money on behalf of its merchants and not merely a technology platform for payments to be made as alleged by the Commissioner of Domestic Taxes.
“The VAT Additional Assessment Order of 26th February 2021 assessing VAT on the commissions earned was not proper in law and not issued within the precepts of the law.”
The Commissioner of Domestic Taxes assessed PesaPal on 3rd March 2021 for incomes declared in its financial statements for the period 2015-2019.
Tax dispute details
In its argument, KRA said PesaPal does not qualify for the exemption as it only offers a payment platform.
PesaPal is not an authorised dealer but a “Payment Service Provider” licensed under the National Payment System Act, No. 39 of 2011. 48. The VAT Act 2013 provides for exemption of the activity or service and not the person offering the service.
“It should be clear that even if PesaPal was a financial (or payment) service provider, the activity carried on by its business does not fall within the financial services (activity) which are exempted under the First Schedule to the VAT Act, 2013 Part II(1),” said the Taxman.
“We have a right in assessing VAT on PesaPal platform. The company has neither demonstrated that its product is exclusively a financial service nor made the distinction between the technology and the financial service.”
In determining whether the tax man erred by raising the VAT tax assessments on Pesa Pal, the tribunal established that PesaPal is a payment service provider.
“The Tribunal is in the circumstances of the view that the Appellant is not a financial service provider as envisaged under the VAT Act and therefore does not qualify for exemption.”
“On the basis of the foregoing analysis the Tribunal finds that the Appeal is not merited and therefore fails.”
Pesapal Receives License from Bank of Tanzania – Kenyan Wallstreet
