KRA eyes real-time collection of digital loan taxes
Times Tower, the Kenya Revenue Authority's head office in Nairobi.
The Kenya Revenue Authority (KRA) is seeking to integrate digital credit providers (DCPs) into its tax system to collect excise duty in real time to enhance revenue collection.
In an interview with Nation, KRA acting Commissioner for Strategy, Innovation and Risk Management Alex Mwangi said the collection of taxes in real-time is critical to reducing non-compliance by taxpayers which is prevalent in the current regime where the collected tax is remitted after 20 days.
“Real-time collection of taxes is very important because this is where we collect taxes as transactions happen. We started with betting tax as well as withholding tax on betting, but we want to expand that to other areas where we are charging excise duty,” said Mr Mwangi.
He said KRA is targeting real-time collection of excise duty from digital lenders which comes at a time the lenders have been finally placed under the regulation of the Central Bank of Kenya (CBK) amid a spike in digital lending.
“In particular we are looking at financial transactions by digital credit providers and airtime because excise is very easy to administer, there is no input or output, it is just on transactions. We are already piloting real-time collection of excise on airtime with one company before we roll it out to the other companies,” he said.
KRA is eyeing similar success that it had in the betting sector, where tax collection rose significantly after integrating betting companies with its system to collect tax in real-time.
The Authority collected a record Sh6.64 billion from betting taxes in the financial year 2022/23 following the integration against a target of Sh5.71 billion, translating to a performance of 116 percent.
DCPs were previously unregulated, but the government was forced to step in to regulate their activities after a huge public outcry, especially regarding their shaming tactics to recover their loans.
Dozens of digital lenders have sprouted out to offer quick loans that are not backed by collateral. The lenders are notorious for charging extortionate interest rates on their loans which are short-term in nature often for a tenure of a month or less.
Despite opposition from lobby groups representing digital lenders, the government last year introduced a 20 percent excise duty on digital loans through the Finance Act, 2022.
The law came into effect on July 1, 2022, with digital lenders immediately moving to increase interest rates.
