The Kenyan government has announced plans to introduce a 20% excise tax on all fees charged by all digital lenders.
Earlier this week, a proposal submitted to the Parliament included an amendment to the Excise Duty 2015 of the Finance Bill, which provides for a 20% tax on all digital loans.
Like many other countries on and off the continent, Kenya’s digital lending space is rapidly growing. At least 13% of Kenya’s population of 53.7 million people have taken digital loans from more than 120 digital lenders operating in the country. As at April 2021, the lenders were disbursing over Ksh 2 billion ($17 million) per month in loans.
The introduction of the tax could also mean increased interest rates for users of digital loan apps like Tala, Branch, Timiza, and O-Kash, most of which already charge high-interest rates from borrowers. Branch, for example, charges a 17% monthly interest rate, while Tala charges as high as 19%.
Kenya leans on digital loans
The proposed tax is the latest in Kenya’s moves to regulate its digital lending space.
Since 2021, the Kenyan Parliament and the Central Bank of Kenya (CBK) have taken active steps in curtailing the activities of digital lenders who charge predatory interest rates and engage in unethical loan recovery practices like debt-shaming.
Last year, Parliament approved the Central Bank of Kenya (Amendment) Bill which bestowed the Central Bank with the power to regulate digital lenders. The approval also subjected digital lenders to the Data Protection Act, which prevents them from violating users’ privacy through debt-shaming.
This March, the CBK also published the Digital Credit Providers Regulations, 2022 which requires digital lenders to obtain licenses from the CBK in order to operate in the country. The regulations also provided that lenders seeking licensing would be required to disclose and verify their sources of income. These regulations have not yet been implemented; the law will go into effect in September.
The proposed 20% tax could have unintended effects on the millions of Kenyans who use digital loan apps. Parliament will deliberate the proposal until Thursday, June 9th before taking a final decision.