Lenders sue over excise tax on loans

Wednesday, August 31st, 2022 04:40 | By
Photo illustration of tax.
Photo illustration of tax. PHOTO/Internet.

Digital lenders have moved to court to challenge the 20 per cent excise duty on loans that came into effect through the Finance Act 2022.

Through their lawyers Anjarwalla and Khanna Advocates, Digital Finance Services Association of Kenya said the new tax is unlawful and unconstitutional since it imposes an unfair tax burden on their members.

“This honourable court be pleased to hold and declare that the impugned amendments introduced in paragraph six to the first schedule to excise duty Act 2015 as amended in the Finance Act 2022 is unlawful, unconstitutional, null and void,” Court documents show.

Public participation

The lobby accuses the government of lack of inclusiveness and transparency and public participation when making such changes.

“The amendments is null and void for failing to comply with the national values of inclusiveness, openness, transparency and public participation and the right to access to information,” the plea reads.  

The tax will push up interest rates and other fees paid by borrowers for digital loans, including those that were not previously regulated by the Central Bank of Kenya (CBK).

“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 said in the proposal. Digital loans are credit obtained via mobile banking or  smartphone apps such as Branch and Tala. 

However, this does not include airtime advances and other forms of digital borrowing such as Safaricom’s overdraft facility Fuliza. The changes will see Kenya Revenue Authority (KRA) hit dozens of digital lenders among them Tala, Branch, Timiza, O-Kash, which have enjoyed explosive growth lending via mobile and had been spared the tax.

Digital lenders will now join the traditional credit providers such as banks and micro-financiers in paying the excise tax that looks set to raise billions of shillings to the KRA.

Parliament approved changes to the law that imposed a 20 per cent tax on fees and commissions earned on bank credit effective July 1 last year.

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