Kenyan Banks Suspend Tax Payments

by Robert Lee, Tax-News.com, London

24 December 2001

As a result of widespread confusion surrounding the controversial Donde Act, all of Kenya's commercial banks have suspended tax payments- which were due last week- to the government.

The decision was made following a meeting of the country's leading bankers on Thursday. The Act, which received Presidential assent in July, stipulates that Kenyan banks should cap their interest rate charges at 4% above the the 91 day Treasury bill every on the last Friday of every month, and that depositors should be paid 70% of the Treasury bill rate in interest. It was originally intended to operate retroactively from January 1st 2002.

However, the banks perceived this as a serious threat to their profitability, and challenged the Donde Act's legality in court, contesting the provision which states that it can be backdated. A High Court decision on exactly how interest rates should be charged was expected on Wednesday, but failed to materialise, and confusion and panic ensued. The court ruling has been deferred until January 24th 2002.

According to reports, bankers met the Kenyan tax authorities on Thursday in order to plead for a delay of payments until the situation is resolved, which would have saved them around Sh280 million in late payment penalties. However, the Kenya Revenue Authority took an inflexible position on the issue, arguing that as the Donde Act has been signed into law, it should be followed without delay.

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