Lenders file suit for excise tax imposed on loans
Digital lenders have filed a suit challenging the 20 percent excise tax on loans enforced through the Finance Act, 2022.
Digital Financial Services Association of Kenya, through its lawyers Anjarwalla and Hanna Advocates, said the new tax is illegal and unconstitutional as it imposes an unfair tax on its members.
This Honorable Court is pleased to accept and announce the amendments made to Part Six! According to court documents, the first order of the 2015 Excise Act, which was amended by the Finance Act 2022, is illegal, not constitutional.
The government lobby blamed the change for the lack of inclusiveness, transparency and public participation: “This change undermines inclusiveness, openness, transparency and public participation in national data and data access rights.”
The tax will increase interest rates and other fees paid by borrowers for digital loans, including those previously not regulated by the Central Bank of Kenya.
“The first schedule of excise duty, 2015 was changed by introducing the following provisions to levy excise duty on fees charged by digital lenders at a rate of 20 percent,” said the committee in the proposal. Digital loans are loans taken through mobile banking or smartphone applications, such as branches and Tala.
However, this does not include airtime advances and other forms of digital loans such as Safaricom’s overdraft facility, Fuliza. The changes will see the Kenya Revenue Authority (KRA) hit dozens of digital lenders, including Tala, Shahamcha, Timiza, O-Kash, who have been granted tax exemptions for their explosive growth loans through mobile.
Digital lenders will now join traditional credit providers such as banks and micro financiers in paying KRA excise taxes that will generate up to billions of shillings.
