(3 Minutes Read)
The 20 percent excise duty, first passed in 2022, is applied to “fees” but is paid on interest and fees, and it becomes due once the loan is disbursed and not when/if it is repaid.
Digital lenders are against the 20% excise duty charged on interest and fees, on top of other taxes, arguing that it has raised the cost of credit and stifled innovation in the fintech sector. The 20% excise duty proposal is contained in the Finance Bill 2024 which is expected to be published before 30th April 2024.
The excise duty has significantly raised the cost of business for digital lenders and microfinance institutions. Financial institutions such as banks are not required to pay the excise tax, giving them an unfair competitive advantage.
While bank loans are often unattainable for many Kenyans, the higher rates digital lenders must charge under this excise duty is financially excluding many in the lower and middle class.
The 20 percent excise duty, first passed in 2022, applies to “fees” but is paid on interest and fees, and it becomes due once the loan is disbursed and not when/if it is repaid. According to several industry players, this means that the excise duty liability is claimed on unbooked revenue, and does not take into account the high rate of default the sector has to grapple with. They also argue that since other financial institutions such as banks do not have to pay excise duty on interest and fees, the imposition of the duty on fintech companies means they can’t compete fairly in the credit market.
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Digital lenders have become central to millions of borrowers in need of short-term loans. Among the most frequent reasons for getting mobile loans are to meet short-term expenses such as capital injections into businesses, payment of cyclical bills such as school fees and rent, and meeting short-term bills.
