Digital Service Tax
CBK Governor Dr Patrick Njoroge.

Bankers are worried that the new digital tax will hurt their mobile money lending arms and have petitioned Parliament to exempt them.

The lenders lobby, Kenya Bankers Association, told MPs to exempt online payments, lending, and trading of financial services including currencies from the law carried out by a regulated bank or a government body.

KBA said the Act should specifically set out the exemption of the financial institutions from Digital Service Tax as set out in the Income Tax (DST) Regulations 2020 in order to avoid any misunderstanding as to the taxability of the services provided by the banks.

MPs said they had already proposed exemptions for institutions that are resident in Kenya which essentially covered the banks.

“The Bill has proposed exclusion of resident persons from DST which means these institutions will not be subject to DST. The proposed exemption is redundant,” MPs said.

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Since the implementation of the digital service tax in January this year, The Kenya Revenue Authority collected Kes 252 million in February and March.

The digital service tax is expected to raise around Kes 1.5 billion in 2021/22 FY even as tax revenue from the “digital marketplace” is expected to increase gradually as the laws and procedures slowly catch up with novel ways of carrying out economic activities electronically.

Banks are increasingly dominating digital lending especially after the Central Bank of Kenya cracked down on unregulated mobile loan providers.

The regulator locked out 624 digital lenders from the credit information sharing mechanism used to by Credit Reference Bureaus in the wake of customer complaints about the misuse of the CIS mechanism, errors in their data and concerns of mining data.

Unregulated players use the CRB mechanism to leverage loan recovery by threatening to list clients for defaults.

This has left the field open for banks which are aggressively marketing digital loans as quick fix facilities and pay day loans.

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