Kenya has levied a 20% excise duty on mobile loan fees, and applied new taxes to imported SIM cards and cellular phones.

Government officials stated: “Excise duty on fees charged by digital lenders at a rate of twenty percent. Excise duty on importation of cellular phones shall be at ten percent of the excisable value. Imported ready-to-use SIM cards Shs. 50 per SIM card.”

According to the Credit Barometer report, released by the Digital Lenders Association of Kenya (DLAK) in November 2021, approximately 55.5% of Kenyan households depend on digital loans for business financing.

The report stated: “(The) majority of Kenyans (82.4 percent) are willing to continue borrowing digital loans to invest in businesses including stocks. 62 percent of these borrowers go to digital lenders as their first option, then to family and friends.”

The new tax measures have been introduced ahead of the official release of the Central Bank of Kenya’s Digital Credit Providers Regulations 2022, expected in September.

According to the regulations, stringent measures should be implemented by lenders when conducting their business, including making their interest amount clear to borrowers.

It reads in part: “A digital credit provider shall provide to the customer the terms and conditions constituting the loan agreement between a digital credit provider and a customer before granting the loan; total cost of credit which shall include the principal amount, interest, fees, charges and any other liabilities; the annual percentage rate of interest.”

The regulation also directs lenders on how they use personal data to either recover loans or share data with third-party entities.

According to Emmanuel Makheti of Ernst & Young LLP, the amount of excise duty will differ from one lender to the other depending on the number of fees they charge their customers.

“The mobile digital lenders lump up charges before they lend to the customer. This would include insurance fee, arrangement fee and interest,” he told ITWeb Africa. “This means borrowers may not have a breakdown of what they are being charged for.”

With the imposition of excise duty, lenders will need to distinguish what fees are susceptible to the excise duty and those which are not.

The drive to implement the excise duty on fees charged by mobile lenders began with the oversight of the Central Bank of Kenya over digital lenders through the Central Bank of Kenya (Amendment) Act, 2021. 

As such, digital lenders are considered part of the financial institutions that already pay the 20 per cent excise duty on other fees with the exception of interest on loans or return on loans, Makheti explained.