Borrowers will suffer as Kenyan digital lenders face new taxation.
A new planned tax in Kenya is expected to hit digital lenders hard. A 20 percent excise tax on fees collected is proposed in the Finance Bill presently before parliament. If parliament accepts this, however, borrowers would most certainly pay higher interest rates on credit provided by mobile lenders.
The latest idea comes as Kenya’s Central Bank tightens its controls on digital lenders. For the past year, the CBK and Parliament have been working hard to establish clear operational guidelines for this financial arena. The CBK Act was recently amended, bringing digital lenders under the authority of the banking regulator. The new rules will take effect on September 18, 2022.
Kenyan digital lenders will be subject to new taxes.
In Kenya, the number of digital lenders has increased, and their unregulated nature has had negative implications. Many debt collection techniques have also become exploitative and dishonest. After being exempt from the tax for a period of time, their tremendous uptake was unavoidable.
According to CBK data, roughly 200,000 consumers took out digital loans from unregulated lenders two years ago.
There are now more than two million of them. The plan to levy a 20% excise tax on all digital lenders will place them in the same category as banks and microfinance institutions.
“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 discuss the idea, with the borrowers bearing the brunt of the consequences. Their popularity is at an all-time high, given the growing expense of living and inflation. All additional costs will be borne by customers, who will be forced to choose between staying away or bearing the load. KRA, on the other hand, will be grinning at the bank.