Digital lenders in Kenya are set to suffer a blow, under a new proposed tax. The Finance Bill currently in parliament seeks to impose a 20 percent excise tax on fees charged. However, if parliament approves this, borrowers will likely be the ones to incur more interest rates for credit offered by the mobile lenders.
The latest proposal comes amidst tight regulations on digital lenders by the Central Bank of Kenya. CBK and Parliament have, for the past year, worked aggressively toward clear operating principles governing this financial space. The latest changes to the CBK Act brought digital lenders under the control of the banking regulator. The regulations will be in effect starting September 18, 2022.
Digital Lenders In Kenya Face New Taxation
There has been a surge in digital lenders in Kenya, and their unregulated nature has not been without consequences. Many have turned predatory and unscrupulous in their loan recovery mechanisms as well. Having enjoyed a period spared from the tax, their massive uptake was inevitable.
Data from the CBK shows that two years ago, about 200,000 people were taking out digital loans from unregulated lenders. Now, there are over two million of those. The proposal to charge a 20 percent excise tax will bring all the digital lenders into the same bracket as banks and micro-financiers.
“The first schedule to the Excise Duty 2015 is amended by inserting the following proviso, excise duty on fees charged by digital lenders at a rate of 20percent,” Parliamentary Committee.
Members of Parliament have until Thursday this week to debate the proposal, and the biggest sufferers will be the ballooning number of borrowers. Considering the rising cost of living and inflation, their popularity is at a high. All the extra charges will be on the consumers, who will have to either stay away or bear the burden. On the other hand, KRA will smile at the bank.