- They made submissions to the Finance Committee of the National Assembly public participation on the Finance Bill 2023.
- Other financial institutions only have Excise Duty charged on “Other Fees.
Digital lenders have rejected the proposal in the 2023 Finance Bill requiring them to remit a 20 per cent Excise Duty on interest charged on loans.
The Digital Financial Services Associations of Kenya (DFSAK) says the move is discriminatory and punitive, as other financial institutions are only required to pay the tax on ‘other fees'.
“This means that while digital lenders are paying Excise Duty on interest on digital loans, other financial institutions including banks are not,” DFSAK chairman Kevin Mutiso said.
The lenders said this when they made submissions to the Finance Committee of the National Assembly public participation on the Finance Bill 2023.
According to Mutiso, the imposition of excise duty on interest charged by digital lenders contradicts the approach taken on core incomes of financial institutions, such as interest for banks, premiums for insurers, and premium-based commissions for insurance brokers, which are exempted from excise duty.
The main effect of this is that digital lenders will have Excise Duty charged on any amount they charge in respect of lending which includes interest on loans.
Other financial institutions only have Excise Duty charged on “Other Fees,” which specifically removes interest on loans and return on loans from the ambit of Excise Duty.
“This leads to a lopsided market favouring other financial institutions over digital lenders when both sets of institutions provide the same service to the citizens of Kenya,'' Mutiso said.
He added that the extra expense borne by digital lenders as a result of this makes it more difficult for them to compete with other financial institutions as they have a higher tax obligation.
Industry players argued that the proposal, as currently drafted would be detrimental to the innovation of FinTechs in Kenya.
It will also make access to credit costly for about eight million citizens who cannot access the formal or conventional forms of credit, and disrupt consistency in tax collection.
‘Either the Financial institutions are subject to the same regime that digital lenders are subject to and they add up to Sh100 billion in additional tax revenue or we are subject to the same tax rate as them and we let FinTech continue thriving in Kenya,'' Mutiso added.
DFSAK are pushing legislators to amend the provision by levelling the playing field including a decision to compel the banks to pay the levy on all credit to promote a free-market economics lending.
“All financial institutions will have the same cost of credit and will have to rely on innovation and customer satisfaction to thrive. The benefit to the customers will be what fair competition brings to the table,” said Mutiso.