The High Court of Kenya has upheld the Kenya Revenue Authority’s (KRA) assessment of excise duty on various financial transactions including bridging loan transactions by Stima Deposit-Taking Savings & Credit Cooperative Society Limited.
Justice Benjamin Musyoki said KRA was justified in charging excise duty on interest on bridging loans by the bank.
“The respondent’s objection decision dated 10-03-2023 as far as it relates to Excise Duty on cheque book application and interest on salary transfer is set aside and adjusted as per consent signed by the parties on 21-12-2023,” the judge said in a February 28,2025 decision.
“The appeal in respect of excise duty on interest on bridging loan, interest on boosting of deposits, interest deferred on appraisal, and interest in Sacco re-joining fees is hereby dismissed and the tribunal’s judgment on those aspects is upheld,” justice Musyoki added.
A bridge loan is a short-term form of financing that is used to meet current obligations before securing permanent financing.
The case arose following a tax assessment issued by KRA, demanding Sh435 million from Stima DT Sacco. This amount comprised Sh265,376,762 in principal tax liability, Sh13,268,838 in penalties, and Sh156,572,290 in interest.
The assessment covered the years 2017, 2018, 2019, and 2021. It was based on excise duty levied on various fees and interests, including those on bridging loans, deposit boosts, salary transfers, Sacco re-joining, cheque book applications, and loan appraisals.
During the proceeding of the court case, the parties partially settled some aspects of the dispute through a consent agreement signed on November 29, 2023.
Under this agreement, certain excise duty assessments, including those on cheque book fees and interest on salary transfers, were either reduced or waived.
However, the dispute over excise duty on bridging loans, deposit boosts, and loan appraisals remained unresolved and became the main issue at the High Court appeal.
Stima DT Sacco argued that these charges were genuine interest payments and not taxable services. It said that its financial transactions were fundamentally different from those taxed in a previous case involving the same parties.
The Sacco urged the court to distinguish between the two cases, stating that applying excise duty to its charges was an error.
On the other hand, KRA defended its tax assessment, maintaining that the charges in question were not genuine interest but rather service fees masquerading as interest. It relied on the precedent set in a previous case, where the High Court ruled that similar Sacco charges were subject to excise duty.
In the judgment, Justice Musyoki sided with KRA, stating that the charges levied by the Sacco were mere book entries rather than actual interest payments. He agreed that the fees were administrative charges rather than interest exempt from excise duty.
As a result, the court dismissed the Sacco’s appeal concerning excise duty on bridging loans, deposit boosts, and loan appraisals, affirming the Tax Appeals Tribunal’s decision on these issues. However, the court upheld the partial consent agreement between the parties, adjusting KRA’s tax assessment on cheque book fees and salary transfer interest as agreed.
