Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

January 19, 2024

Kenyan High Court again holds interchange fees are exempt from VAT

  • The Kenyan High Court held that value added tax (VAT) is not applicable to interchange fees.
  • Interchange fees were deemed to constitute financial services that are generally VAT-exempt as per the VAT Act, 2013.
  • The ruling upheld earlier decisions by the Tax Appeals Tribunal and the High Court.

Executive summary

The Kenyan High Court held on 20 November 2023 that value added tax (VAT) is not applicable to interchange fees that an issuing bank earned on credit card transactions.

In Commissioner of Domestic Taxes v. Commercial Bank of Africa Limited (Civil Appeal E146 of 2021) the Commissioner of Domestic taxes (Appellant or Commissioner) sought to charge VAT on interchange fees earned by the Commercial Bank of Africa Limited (Respondent or Bank) in its capacity as an issuing bank. The Bank maintained that the card transactions giving rise to interchange fees qualify as money transfer services, which encompass financial services that are VAT-exempt.

The Tax Appeals Tribunal (TAT) ruled for the Bank and the High Court affirmed.

Detailed discussion


On 12 June 2018, the Commissioner issued a tax assessment to the Bank amounting to more than 304.43 million Kenyan shillings (KES 304.43m) for the period 01 January 2013 to 31 December 2013 for undeclared VAT on interchange fees. The Bank objected to the tax assessment and the TAT held that interchange fees are not subject to VAT (i.e., VAT-exempt). Thereafter the Commissioner appealed the TAT decision at the High Court.

Key positions of the parties

The Commissioner asserted that interchange fees fall under the definition of management and professional fees and thus are subject to VAT. The Commissioner relied on certain facts, including: (1) the VAT Act of 2013 did not expressly state that interchange fees were exempt financial services; and (2) services the Bank provided, which included authorization, clearing and settlement, were not exempted by the VAT Act under paragraph 1 of the Third Schedule of the repealed VAT Act. Therefore, the Commissioner concluded that the services were taxable under sections 5, 6(1) and 6(4) of the repealed VAT Act.

In its arguments to the High Court, the Respondent contended that (1) interchange fees/payments were not payment for services but rather a cost-balancing mechanism that the issuing banks incur when issuing cards and (2) the TAT did not err in holding that the issuing bank conducts the services based on the contractual relationship with the customers.

High Court determination

The question before the Court was whether VAT is applicable on interchange fees.

To answer this, the Court had to first determine what role the Respondent played as an issuing bank in a card payment network. The Court referred to the case Commissioner of Domestic Taxes v Bank of Africa Limited,1 which reads in part:

[T]he issuer is the gate keeper to the card-holder's account from which it transfers money to the acquirer for cardholders' purchases and earns interchange fees in return. The issuer's primary service is therefore to the cardholders as customers. [T]he nature of the service the issuer renders to card holders is a financial service because the issuing bank owes cardholders a duty to verify not only their details and eligibility to use the cards but also deduct money from their accounts and pass it to the acquirer.

The High Court noted that under paragraph 1(b) of the VAT Act, transfer, receipt or any dealings with money is exempt from VAT. Because the interchange fees is earned from the process of operating the customer's account by conducting verification of the cardholder details and availability of funds, the service was exempt from VAT as a financial service.


The decision by the High Court upholds that interchange fees should not be subject to VAT as they fall within the ambit of financial services, which are VAT-exempt under the VAT Act.

* * * * * * * * * *


1 See EY Global Tax Alert, Kenya High Court upholds that interchange fees are financial services exempt from VAT, dated 4 April 2024.

* * * * * * * * * *
Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young (Kenya), Nairobi

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more