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The Kenya Revenue Authority (KRA) wins Kshs. 234 million tax claim Against Equity Bank

Equity Bank is set to pay the Kenya Revenue Authority Kshs. 234 million. This is after the Kenya Revenue Authority won a Kshs. 234 million tax claim against Equity Bank Ltd. The High Court in Nairobi upheld the Tax Appeal Tribunal’s earlier decision allowing the taxman to charge the Equity bank Pay As You Earn on Employee Stock Ownership Plan (ESOP).

The Bank had filed an appeal against the Tribunal judgement delivered in December 2019 upholding the taxman’s move to claim the tax.

The Kenya Revenue Authority carried out a tax compliance audit of the Bank’s records on Corporation Tax for the year of income 2015, Excise Duty for the period dated August 2013 to December 2015, and Pay As You Earn taxes for the year of income 2016.

After the audit, the KRA issued an assessment report 2017 for Kshs.1,738,969,276 inclusive of penalties and interest amounting to Kshs.1,158,683,449 on account of excise duty, Kshs. 234,138,308 on account of PAYE and 346,147,520 on account of Corporation Tax

The taxman contended that the Bank operates an ESOP (Employee Stock Ownership Plan) where employees are allowed to acquire the bank’s shares at discounted prices.

Eligible employees are invited to take up offers when opened and that the shares allocated and taken up by staff are held for five years after which the same are vested, ineligible members of staff.

According to the Income Tax Act provisions, if the employee opts to exercise this option, a taxable benefit is conferred similar to any other employment benefit as access to the benefit is only granted as a result of a person’s employment hence can only be classified as a benefit of employment and is, therefore, subjected to Pay As You Earn tax.

Therefore, the High Court upholding the judgment of the Tribunal agreed with Kenya Revenue Authority’s submissions that the ESOP programme confers a benefit to an employee. This benefit to the employees arises from the fact that the value of shares, whether or not issued at a discount, would automatically appreciate at the time of investing.

The appreciation in value is the benefit to the employee and therefore liable to taxation.

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