The cost of loans will increase after the MPs approve the duty of 20%

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Economy

The cost of loans will increase after the MPs approve the duty of 20%


olaka

CEO of the Kenyan Bankers Association (KBA) Habil Olaka. FILE PHOTO | NMH

The cost of the loan is expected to rise since July after lawmakers rejected a request from bankers to exclude fees and commissions received on loans from the 20 percent excise tax.

The Parliamentary Finance and Planning Committee retained a proposal in the 2021 Finance Bill to exclude “fees or commissions” received by financial institutions on a loan from the exemption from payment of fees in accordance with current legislation.

This will result in banks paying the tax inspector over 7 billion shillings a year in taxes on fees and commissions charged for processing loans, which, according to the Central Bank of Kenya, totaled 35.87 billion shillings last year.

The Committee argues that the proposed amendment to Part Three of the Annex to the Interpretation of the Excise Tax Act, changing the definition of “other charges”, is in line with the government’s policy to reduce tax incentives.

“The committee rejected this proposal because it denies the intended target of reducing tax expenditures. It will also undermine the tax base, ”wrote a committee chaired by Gladys Wanga, a spokeswoman for the women of Homa Bay, in a report for House deliberation and approval.

If approved by the House of Representatives, which is due to debate and pass the bill by the end of this month, fees and commissions associated with loans will be levied from July 1.

The Kenyan Bankers’ Association (KBA), which lobbies lenders, argued in a speech to lawmakers that excise taxes on fees and commissions would increase the cost of borrowing.

The KBA said the higher cost of credit, in turn, is likely to affect access to credit at a time when businesses and households are looking for money to recover from the blows of the Covid-19 pandemic.

Tax experts argued that the Treasury’s decision to amend the law on fees and commissions received by lenders on loans was a reaction to a ruling by the Tax Court of Appeal that fees such as loan administration fees were exempt from excise duty.

A 20 percent excise tax was introduced in 2018, driving up the cost of banking services such as transfers – both local and international, over-the-counter cash withdrawals, and ATM transactions and transaction fees.

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