Kenya’s new national payment switch sparks debate over financial vs. digital taxation
The Central Bank of Kenya (CBK) is set to introduce a national switch for seamless money transfers across different banks, wallets, and networks. This move, while beneficial for users, has sparked a debate over whether such services should be classified as financial or digital, with significant implications for taxation and innovation in Kenya's digital economy.
The CBK's plans have been influenced by the recent ruling on Kenswitch, a company that connects ATMs and point-of-sale systems across Kenyan banks. The Tax Appeals Tribunal ruled that Kenswitch's services are part of the financial system, not ICT-based operations, and thus exempt from Value Added Tax (VAT). This ruling has significant implications for the evolution of Kenya's national Nintendo Switch and could shape pricing, competition, and cross-platform transaction costs.
Payment switch firms, acting as 'traffic controllers' of digital transactions, move data and money between issuers, acquirers, and card networks. The Kenswitch ruling sets a precedent for two other licensed switch operators in Kenya: PesaLink and Switchlink Africa. The Kenya Revenue Authority (KRA) can no longer collect 16% VAT from firms that link banks, mobile money operators, and payment service providers.
The CBK's national switch initiative and the Kenswitch ruling highlight the complex interplay between financial services, digital innovation, and taxation in Kenya's evolving digital economy. The exemption from VAT for switch operators could foster competition and reduce transaction costs, potentially driving financial inclusion and digital growth.
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