If you borrow from digital lending apps, you are set to pay more after a directive to effect excise tax on the loans starting in August this year.
The Digital Lenders Association says all its members who are licensed under the new digital lending regulations and those seeking to obtain operating licenses will now be required to remit excise tax to the Kenya Revenue (KRA) Authority on behalf of its borrowers.
“The proposed change affects all digital loans from 1st of July as we will be required to effect excise tax which is a percentage of fees levied on borrowers for services rendered by the lenders,” DLAK Chairman Kevin Mutiso said.
Currently, Excise Duty Act is defined as any fees, charges, or commissions levied by financial institutions in connection with their licensed activities. This means fees and commissions for licensed lenders. The cost band will be widened as a result, increasing the amount the borrower will be charged.
Digital lenders will also be required to subtract the new tax based on “time of supply,” which must be prior to the service being rendered and before the invoice for the supply of service is issued or cleared, in whole or in part, prior to the date on which borrowers are required to make payment for the services received.
According to the Excise Duty Act, the “period of supply” determines the tax point for excise duty, Mutiso continued.
The deductions will, however, not include loan interest or loan return, any profit-sharing, insurance premiums, or commissions based on insurance premiums or related commissions as defined by the Insurance Act or regulations.
“Excise duty is usually a cost to the final consumer. This means it is loaded in the pricing and transferred to the consumer as a cost. Digital lenders will be responsible for excise duty submission to KRA,” Mutiso states.