Digital Lenders Challenge 20 Percent Excise Tax In Court

Digital lenders moved to court seeking to revoke the 20 percent excise tax on loans advanced to online borrowers, setting it on a collision course with the incoming government. The 20 percent tax on fees charged on all digital loans was introduced following an amendment to the Excise Duty 2015 of the Finance Act.

Through their umbrella body, Digital Finance Services Association of Kenya, the Digital lenders want the court to suspend further implementation of the Excise Duty Act as amended by the Finance Act 2022, pending the determination of the suit.

The fintech lenders want the court to issue orders barring the taxman from collecting or demanding payment of excise duty on fees charged on loans. The new law came into operation on July 1, 2022.

Through lawyers Faith Macharia and Ikoha Muhindi, the association says it sued because its members are required to account for and pay excise duty for July 2022, being the first month in, which the disputed amendment became operational.

The imposition of the tax prompted an increase in the cost of mobile loans such as KCB M-Pesa and M-Shwari and Fuliza. The excise duty on normal loan fees was projected to earn the Kenya Revenue Authority (KRA) more than Ksh7 billion annually.

“As a result of the disputed amendment, digital lenders are denied the statutory benefits of excluding interest from the tax base for the 20 percent excise duty applicable on transactions with their customers- a benefit which other financial institutions, including non-digital lenders, enjoy under Excise Duty Act,” says the association.

The Digital Finance Services Association is disputing the new tax on grounds that it unfairly discriminates against its members as compared to other financial institutions.