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Supreme CourtAllowedPetition 12 (E014) of 2022

Barclays Bank of Kenya Limited (Now ABSA Bank Kenya PLC) v Commissioner for Domestic Taxes (Large Taxpayers Office); Kenya Bankers Association & another (Interested Parties)

Supreme Court of Kenya
5 December 2025
13,099 words in judgment
View original judgmentRead on Kenya LawDownload the judgment (PDF) Watch case
AI-assisted case brief
·~52 min to read original · ~4 min brief

The bottom line

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Bank fees to Visa/Mastercard are not royalties; interchange fees are not management fees.

What this practically means

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The Supreme Court ruled that Absa Bank does not have to pay withholding tax on fees it pays to card companies like Visa and Mastercard. These fees are for transaction processing, not for using trademarks. Similarly, interchange fees paid between banks are not management or professional fees. The Court said tax laws must be clear and cannot be stretched to cover payments that do not fit the exact legal definitions. This decision overturns the Court of Appeal and clarifies tax treatment for card payment systems in Kenya.

Executive summary

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The Supreme Court allowed an appeal by Absa Bank Kenya Plc against the Court of Appeal's decision which had upheld the Commissioner of Domestic Taxes' demand for withholding tax on payments made by the bank to card companies (Visa, Mastercard, Amex) and on interchange fees paid to other issuing banks. The Court framed two issues: whether payments to card companies constitute royalties, and whether interchange fees constitute management or professional fees, both under the Income Tax Act. On the first issue, the Court held that the payments were transaction facilitation fees, not royalties. It emphasized that the framework agreements with the card companies expressly excluded royalty payments, and that taxing statutes must be strictly construed; a court cannot disregard clear contractual provisions to infer a tax liability. On the second issue, the Court held that interchange fees are not management or professional fees. The services provided by the issuing bank (authorization, clearing, settlement) do not constitute the specialized services contemplated by the statutory definition. The Court noted that interchange fees are an income stream already subject to corporate tax, and imposing withholding tax would risk double taxation without clear statutory language. The Court overturned the Court of Appeal judgment, allowed the appeal, and ordered each party to bear its own costs, noting the litigation was of general public importance and had resulted in a final clarification of the law.

Questions the Court framed

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The issues the Court set itself to decide, in its own words.

  1. 1.Whether payments made by Acquiring Banks to Card Companies constitute royalties liable to taxation and subject to withholding tax;
  2. 2.Whether interchange fees paid by an Acquiring Bank to an Issuer Bank can be classified as management or professional fees liable to taxation and subject to withholding tax

Key legal issues

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01

Whether payments made by an acquiring bank to card companies (Visa, Mastercard, Amex) constitute 'royalties' under Section 2 of the Income Tax Act, subject to withholding tax under Section 35.

Holding

The payments are not royalties. The framework agreements between the appellant and the card companies expressly excluded royalty payments for trademark use. The payments were transaction facilitation fees for the use of the card companies' global payment platforms, not consideration for the use of trademarks. The Court of Appeal erred by disregarding the clear contractual provisions.

Reasoning

The Supreme Court held that the critical instruments for resolving this issue were Section 2(d) of the Income Tax Act and the trademark licence agreements. The agreements with Mastercard and Amex expressly stipulated that no royalties were payable, and the Visa agreement was silent. The Court found that the payments were for transaction facilitation services, not for the use of trademarks. The Court emphasized that taxing statutes must be strictly construed, and it would not disregard the clear provisions of a written contract to infer a royalty. The Court was persuaded by the explanation that the fees were for the complex system of credit card transactions, and that for a payment to be a royalty, the language in the legislation and the agreement must be clear and unambiguous.

02

Whether interchange fees paid by an acquiring bank to an issuing bank constitute 'management or professional fees' under Section 2 of the Income Tax Act, subject to withholding tax under Section 35.

Holding

The interchange fees are not management or professional fees. The services provided by the issuer bank (authorization, clearing, settlement) do not fall within the categories of managerial, technical, agency, contractual, professional, or consultancy services as defined. The fees are an income stream shared between acquirer and issuer, already subject to corporate tax, and imposing withholding tax would risk double taxation.

Reasoning

The Court analyzed the definitions of 'management or professional fee' under Section 2 of the Income Tax Act, noting that each term (managerial, technical, agency, etc.) denotes the possession of specialized skill. The Court found that the services provided by the issuer bank in facilitating a card transaction did not constitute such specialized services rendered to the acquirer. The interchange fee was defined as a fee paid by the acquiring bank to the issuing bank for each card transaction, shared from the merchant service fee. The Court found that this fee is an income that accrues to the banks and is already subject to corporate tax. Subjecting it to withholding tax would raise a concern of double taxation, which the legislature is unlikely to have intended without clear statutory language.

Legal principles established

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  • Payments to card companies for transaction processing are not royalties under the Income Tax Act.
  • Interchange fees between banks are not management or professional fees subject to withholding tax.
  • Taxing laws must be strictly interpreted; taxes cannot be imposed by implication or conjecture.
  • Courts must respect clear contractual terms and cannot infer tax liability where none exists.
  • Income already subject to corporate tax should not be double-taxed through withholding tax without clear statutory language.

Court orders

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  1. 1.The appeal dated 17th June 2022 and filed on even date, is hereby allowed;
  2. 2.The Judgment of the Court of Appeal dated 6th November, 2020, is hereby overturned and set aside;
  3. 3.Each party shall bear its costs;
  4. 4.The sum of Kshs 6,000 deposited as security for costs be refunded to the petitioner.

The bench

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One judgment of the whole court — no separate or dissenting opinions.

Martha Karambu Koome
M. K. KoomeCJ
Currently serving
majority

Wrote the judgment

Smokin Charles Wanjala
S. C. WanjalaSCJ
Currently serving
majority
Njoki Susanna Ndungu
Njoki NdunguSCJ
Currently serving
majority
Isaac Lenaola
I. LenaolaSCJ
Currently serving
majority
William Ouko
W. OukoSCJ
Currently serving
majority
On appeal from
Court of Appeal at Nairobi
Civil Appeal No. 195 of 2017
Jurisdiction invoked
Articles 163(4)(b) and 163(5) of the Constitution

Quotable passages

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Verbatim from the judgment, each located to the page it appears on in the official PDF — so these can be cited and checked directly.

The Fees paid by an acquiring bank to card companies, are not royalties within the meaning of Section 2 of the Income Tax Act, hence not liable to withholding tax, under Section 35 of the Income Tax Act.
p. 22 Royalties - Withholding Tax
The Interchange Fees paid by an acquiring bank to an issuing bank are not professional or management fees within the meaning of Section 2 of the Income Tax Act, hence not liable to withholding tax under Section 35 of the Income Tax Act.
p. 22 Management or Professional Fees - Withholding Tax
the subject is not to be taxed unless the words of the taxing Statute unambiguously impose the tax upon him. Further, taxation can only be done on the basis of clear words and not on intendment, and that certainty of law is an important ingredient of the rule of law, including tax law.
p. 17 Principle of Strict Construction in Tax Law

Key timeline

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2025-11-06
Supreme Court allows Absa Bank's appeal, overturning Court of Appeal judgment.
2020-11-06
Court of Appeal upholds tax demand against Absa Bank.
2022-06-17
Absa Bank files appeal to the Supreme Court.

Practical implications

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For lawyers

Tax litigation strategy shift

This case strengthens arguments against KRA's expansive interpretation of 'royalties' and 'management fees'. When advising clients on withholding tax disputes, emphasize strict construction of taxing statutes and the primacy of written contracts. Challenge any KRA demand that relies on implication rather than clear statutory language, especially for cross-border payment processing arrangements.

For businesses

Review payment structures for tax

If your business pays fees to international card networks or other banks for transaction processing, this ruling confirms those payments are not subject to withholding tax as royalties or management fees. However, ensure your contracts explicitly describe the nature of payments as transaction facilitation fees, not trademark or management fees, to avoid future disputes with KRA.

For individuals

No direct impact on personal taxes

This ruling does not affect individual taxpayers directly. It concerns corporate tax treatment of bank-to-bank and bank-to-card-network payments. However, it reinforces the principle that tax authorities cannot impose taxes without clear legal basis, which protects all taxpayers from arbitrary tax demands.

Frequently asked questions

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Does Absa Bank have to pay withholding tax on Visa and Mastercard fees in Kenya?+

No. The Supreme Court ruled that fees paid by Absa to Visa, Mastercard, and Amex are transaction facilitation fees, not royalties. Therefore, they are not subject to withholding tax under Section 35 of the Income Tax Act.

What are interchange fees in Kenya banking and are they taxable?+

Interchange fees are payments from an acquiring bank to an issuing bank for each card transaction. The Supreme Court held these are not management or professional fees, so no withholding tax applies. They are already subject to corporate tax.

Can KRA tax payments that are not clearly defined in the Income Tax Act in Kenya?+

No. The Supreme Court reaffirmed that taxing laws must be strictly interpreted. KRA cannot impose a tax by implication or conjecture. If a payment does not clearly fall within the statutory definition, no tax can be charged.

What does the Absa Bank Supreme Court case mean for other Kenyan banks?+

Other banks that pay similar fees to card networks or receive interchange fees can rely on this ruling to resist withholding tax demands from KRA. It provides binding precedent that such payments are not royalties or management fees.

Later judgments citing this (1)

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Judgments in the corpus that rely on this one. Where the Court said how it treated the authority, that is shown.

Cite this brief

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Cite this brief

Caselaw, "Barclays Bank of Kenya Limited (Now ABSA Bank Kenya PLC) v Commissioner for Domestic Taxes (Large Taxpayers Office); Kenya Bankers Association & another (Interested Parties)", Case Analysis (2025). Petition 12 (E014) of 2022. Source: https://new.kenyalaw.orghttps://new.kenyalaw.org/akn/ke/judgment/kesc/2025/70/eng@2025-12-05

Suggested citation format for research notes or client memos. Always verify the original judgment before relying on any point.