Borrowers will suffer as digital lenders in Kenya face new taxation
Digital lenders in Kenya are set to take a big hit, under a proposed new tax. The finance bill currently in parliament aims to impose a 20% excise tax on fees charged. However, if parliament approves it, borrowers are likely to be the ones to incur higher interest rates for credits offered by mobile lenders.
The latest proposal comes amid tough regulation on digital lenders by the Central Bank of Kenya. The CBK and Parliament have over the past year worked aggressively towards clear operating principles governing this financial space. The latest changes to the CBK law have brought digital lenders under the control of the banking regulator. The regulation will come into effect on September 18, 2022.
Digital lenders in Kenya face new taxation
There has been a rise in digital lenders in Kenya, and their unregulated nature has not been without consequences. Many have also become predatory and unscrupulous in their loan collection mechanisms. Having benefited from a period spared from the tax, their mass adoption was inevitable.
CBK data shows that two years ago around 200,000 people took out digital loans from unregulated lenders. Now there are more than two million. The proposal to levy a 20% excise tax will put all digital lenders in the same bracket as banks and micro-financiers.
“Excise Duty First Schedule 2015 is amended by inserting the following proviso, Excise duty on fees charged by digital lenders at a rate of 20%”, Parliamentary committee.
MPs have until Thursday this week to debate the proposal, and the biggest casualties will be the growing number of borrowers. Given the rising cost of living and inflation, their popularity is at an all-time high. All additional charges will be borne by consumers, who should either stay away or bear the burden. In contrast, KRA will smile at the bank.