Digital lenders are warning of higher interest rates should the Parliament pass new tax guidelines proposed in the Finance Bill 2022.
Speaking during an interview on Citizen TV on Thursday, June 16, Kevin Mutiso, the chairperson of the Digital Lenders Association of Kenya (DLAK) stated that the 20 per cent exercise duty proposed in the Bill will have to be incurred by the borrowers.
He explained that the lenders could not incur the costs as the majority of them were not making profits.
CBK Governor Patrick Njoroge speaking during a press conference on March 30, 2021
File Further, Mutiso explained that the majority of lenders had already made their budgets for the financial year, adding that the new tax proposals will impact their operations should they be passed.
“When you introduce taxes shockingly into the system, we as the investors are unable to plan so as a result of that, currently, we are going through the compliance process. Now we have to readjust our budget and we have to increase the cost to the customer or reduce the pricing of the loans where we incur the cost.
“We shall have to pass the cost to the consumer and then figure out how to reduce it,” he stated.
In a report tabled before the National Assembly by the Finance Committee led by Homabay Woman Representative, Gladys Wanga, it was proposed that the exercise duty be introduced to enable the Kenya Revenue Authority meet its tax collection targets.
“The First Schedule to the Excise Duty 2015 is amended by inserting the following provision, excise duty on fees charged by digital lenders at a rate of 20 per cent,” read the Committee report.
Interest rates charged by digital lenders are currently approved by the Central Bank of Kenya (CBK) following the passing of the Central Bank Act of 2021.
The majority of digital lenders currently charge an interest rate of between 15 and 19 per cent.
This framework was developed after concerns were raised over the breach of Kenyans’ personal details after people complained of being called over loans taken by their friends and relatives.
According to the 2021 FinAcces Household Survey released by the Kenya National Bureau of Statistics and the CBK, it was estimated that over 14 million Kenyans take loans from digital lenders.
A person using a phone
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