Digital lenders to charge more as KRA imposes excise duty on borrowers –

Borrowers of digital lending apps are expected to pay more after a directive to apply excise tax on loans from August this year. The Digital Lenders Association has said that all of its members licensed under the new digital lending regulations and those seeking to obtain business licenses will be required to remit excise tax to the Kenya Revenue ( KRA) Authority on behalf of its borrowers.

“The proposed change affects all digital lending from July 1, as we will be required to apply an excise tax which is a percentage of the charge levied on borrowers for services rendered by lenders,” the president said. by DLAK, Kevin Mutiso.

Currently, the Excise Duty Act defines “other fees” as any fees, charges or commissions levied by financial institutions in connection with their licensed activities. This includes fees and commissions for approved lenders. The cost band is thus widened, which increases the amount that will be invoiced to the borrower in the final calculation.

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Digital lenders will be required to subtract the new fee based on the “time of supply”, which must be prior to the provision of the service and before the invoice for the provision of the service is issued or cleared, in whole or in part , before the date on which borrowers are required to pay for the services received.

According to the Excise Duty Act, the “period of supply” determines the point of imposition of excise duty, Mutiso continued.

However, deductions will not include interest on the loan or return on the loan, any profit sharing, insurance premiums or commissions based on insurance premiums or related commissions as defined by the insurance or its regulations. Therefore, interest is not included in the deductions.

“Excise duties generally represent a cost for the final consumer. This means that it is charged in pricing and passed on to the consumer as a cost. Digital lenders will be responsible for submitting excise duties to the KRA,” Mutiso said.

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A 2021 digital lending report from consumer intelligence firm Reelanalytics showed that a significant number of Kenyans consider digital lending platforms a priority when seeking credit for small businesses.

Due to their classification as financial institutions, all regulated digital lenders will no longer be subject to thin capitalization regulations. Any Multinational Enterprise Group (MNE) with a head office in Kenya and a gross turnover of KSh 95 billion will be subject to a Country-by-Country Reporting (CbCR) requirement under the Finance Bill 2022, which could increase the final cost to the consumer.

“The multinational enterprise will be required to inform the statutory auditor no later than the last day of the group’s accounting period if it is the UPE or the surrogate entity of the group or the tax resident of the constituent entity which is the UPE or surrogate entity in the Group,” he said.

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