Borrowers who rely on digital loans will have to pay more for credit if the Finance Bill seeking to impose a 20 percent excise tax on fees charged by digital lenders are approved.
Should the Bill be approved, the excise tax will increase interest rates and other fees paid by digital borrowers on platforms such as M-Shwari or KCB M-PESA.
The new tax will apply to all payments including those that were not previously regulated by the Central Bank of Kenya (CBK).
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However, it will not apply to Safaricom’s overdraft facility, Fuliza.
“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,” the committee says in the proposal.
Members of Parliament have until Thursday, June 9 to debate the proposal.
If approved, the proposal will increase the revenue basket for the Kenya Revenue Authority (KRA).
The worse-hit will be digital lenders such as Tala, Branch and O-Kash which had been spared the tax.
This comes two months after CBK directed digital lenders to register with the CBK under new rules that bar the firms from sharing borrowers’ information with third parties.
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Starting September, the lenders will apply to CBK for approval of interest rates on their loans and disclose all terms of their credit to borrowers.
They have also been barred from sharing information of loan defaulters with third parties.
“The Regulations are now operational, all previously unregulated DCPs are required to apply to CBK for a license within six months of the publication of the Regulations, i.e., by September 17, 2022, or cease operations,” CBK said.