The removal of the 20 percent tax by the Treasury is contained in the Finance Bill and will see banks save up to 7 billion shillings every year on taxes generated from fees charged on processing loans.
In a move aimed at cutting the cost of credit in Kenya, the National Treasury has removed the 20 percent excise duty on bank loan fees. Analysts say given the impact of the Covid-19 pandemic on the economy, the move is a relief on various sectors.
The Kenyan economy has been hit hard by the Covid-19 pandemic leading to millions of businesses shutting down and more than four million Kenyans left jobless. The pandemic has forced most banks in Kenya to restructure their loans.
The removal of the 20 percent tax by the Treasury is contained in the Finance Bill and will see banks save up to 7 billion shillings every year on taxes generated from fees charged on processing loans. Fees on loans currently attract the excise duty account for an average of 2.5 percent of the overall lending rates.
The 20 percent excise tax was introduced in 2018, triggering an increase in the cost of bank services, including loans, transfers — both local and international — over-the-counter withdrawals as well as ATM transactions and account operating fees.
“The first schedule to the Excise Tax Act, 2015 is amended in part three, in the definition of ‘other fees’ by deleting the word ‘fees or commissions’ earned in respect of a loan,” the Treasury says in the Bill.
The government removed the cap on lending rates on November 7, 2019, after it was blamed for curbing credit growth during its three years of existence. Banks use a base rate that is normally the cost of funds, plus a margin and a risk premium, to determine how much they should charge a particular customer.
Kenyan banks have registered a drop in profits for the financial year 2020 attributing the losses to the effects of the pandemic that have led to most of the customers delay on paying their loans.