Digital loans to get expensive as excise tax bites, lobby says

A digital lenders’ lobby says the implementation of a 20 per cent excise tax on credit facilities will make loans more expensive for small businesses.

Digital Lenders Association of Kenya (DLAK) says members licensed under the new digital lending regulations and those yet to get operating licenses will be required to remit the excise tax to the Kenya Revenue Authority (KRA) on behalf of borrowers starting next month.

“Proposed change affects all digital loans from 1st of July as we will be required to effect excise tax which is a percentage of fees levied on borrowers for services rendered by the lenders,” said DLAK chairman Kevin Mutiso.

The Act defines “other fees” to include fees and commissions for licensed lenders which means any fees, charges or commissions charged by financial institutions relating to their licensed activities.

This widens the bracket on costs, meaning the borrower will be charged more when the final computation is done. The deductions will however not include interest on a loan or return on a loan or any share of profit or an insurance premium or premium based or related commissions specified in the Insurance Act or regulations- therefore interest is excluded from the deductions.

Submission of duty “Excise duty is usually a cost to the final consumer. This means it is loaded in the pricing and transferred to the consumer as a cost.

Digital lenders will be responsible for excise duty submission to KRA,” Mutiso said. Digital lenders are required to deduct the new tax before the payment date for the services received by borrowers.

It means licensed digital lenders will no longer be subjected to thin cap rules as they would be deemed as financial institutions.