Kenyan borrowers are breathing a sigh of relief after the Treasury scrapped the 20 percent excise duty on bank loan fees.
The move is set to reduce the cost of accessing credit which has seen many borrowers pay more to access loans.
“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 banks are upbeat that the removal of the excise duty will reduce pressure on lenders to have to raise loan costs.
This will see the banks save up to Ksh7 billion annually on taxes generated from fees charged on processing loans.
The excise tax introduced in 2018 led to an unprecedented increase in the fees charged by banks for account operating fees, loan services, transfers, over-the-counter withdrawals and ATM transactions.
The move comes at a time when banks have been pushing the Central Bank of Kenya (CBK) to allow them to raise the cost of loans.
In 2019, the government removed the cap on lending rates which it had earlier put in place to make access to credit cheap – after Kenyans complained about the high cost of credit.
“If the tax is removed, then most likely we will pass this to customers. Most banks will reduce the fees charged on loans,” argued a banker who asked not to be named.
Parliament will hold a vote on the tax measures in the coming days ahead of the Finance Bill automatically becoming law on July 1.