Kenyans relying on Buy Now, Pay Later (BNPL) services like Lipa Mdogo Mdogo and Aspira are facing higher costs following the introduction of a new 20% excise duty on credit offered by non-bank lenders, as mandated by the Tax Laws (Amendment) Act, 2024.
The Kenya Revenue Authority (KRA) announced that all non-bank financial institutions, including digital lenders and retailers offering BNPL schemes, must now charge excise duty on fees, charges, or commissions related to credit, even if lending is not their primary business.
This policy has sparked concerns about increased living costs and stifled financial inclusion amidst Kenya’s ongoing economic challenges, including a 67% youth unemployment rate and recent Saba Saba protests that cost Sh18 billion daily in GDP losses.
The new excise duty, outlined in the Excise Duty Act’s First Schedule, targets fees charged by digital lenders and BNPL providers, such as those facilitating purchases of electronics, furniture, or appliances through instalment plans.
Unlike traditional banks, which are exempt from excise duty on loan interest, non-bank lenders must apply the 20% tax at loan disbursement, regardless of repayment status, according to KRA’s guidelines.
@BD_Africa reported that this could raise BNPL costs significantly, with retailers like Lipa Mdogo Mdogo, partnered with Safaricom, potentially passing the tax burden to consumers, increasing monthly payments for items like smartphones or TVs.
The Digital Financial Services Association of Kenya (DFSAK) argues this creates an uneven playing field, as banks face fewer tax obligations on similar services.
Industry experts warn that the tax could disrupt Kenya’s fintech sector, which serves over 8 million citizens unable to access conventional credit.
Kevin Mutiso, DFSAK chairman, told The Star that the excise duty on BNPL and digital loans discourages innovation and raises credit costs, with default rates already high at 30% for some lenders.
The policy follows a 2021 excise duty on mobile loans like M-Shwari, which increased costs from 7.5% to 9% for a 30-day loan, per Money254.
@kenyanwalstreet noted on X that non-compliance risks penalties, with KRA requiring payments by the 20th of the following month via iTax.
The tax comes amid broader economic reforms, including KRA’s new Certificate of Origin requirement for imports and plans to handle cargo clearance, threatening 200,000 jobs.
Critics, including KIFWA, argue the government’s revenue drive targeting Sh791 billion in 2024—overburdens small businesses and consumers.
@MwangoCapital said concerns about BNPL users facing “higher prices for essentials,” reflecting public frustration.
As Kenya navigates political unrest, with 31 protest deaths reported by KNCHR, the excise duty on BNPL services risks further alienating youth reliant on flexible credit.
