Digital Loans to Cost Even More - Money Weekly

Over the last seven days, the effects of an apparent dollar shortage in Kenya have led to the closure of a major cooking oil factory, with experts telling Kenyans to brace themselves for even higher cooking oil prices.

In line with this, leaders in Kenya’s private sector are seeking an audience with the Central Bank of Kenya (CBK) in a bid to find a solution to the dollar problem before things get out of hand.

Let’s look back at this, as well as some of the most significant money news over the last week and how they could affect your pocket.

Cooking Oil Conundrum

Kenyans are facing a massive oil shortage after edible oil producer Kapa oil refineries limited, the maker of Rina Oil, Prestige margarine, and Toss, announced on June 8, 2022, that it is operating at less than capacity due to what it describes as a dollar shortage.

“Our operations have been hampered due to the dollar scarcity and inability to access raw materials, this could lead to a fresh hike in prices of edible oils,” Kapa Oil marketing manager Sid Shah stated.

This came just two days after Pwani Oil – manufacturers of Fresh Fri, Salit, and Fry Mate cooking oil brands, temporarily shut down its operations due to what they cited as the scarcity of the dollar which made it hard for the company to secure raw materials.

On Wednesday, June 8, stakeholders in Kenya’s private sector staged a virtual meeting that served to uncover the extent of the apparent dollar shortage in the market.

Beyond manufacturers of Fast Moving Consumer Goods (FMCG), players in the automotive industry and travel also highlighted challenges in accessing dollars from their banks.

However, the CBK has rubbished claims that there was a dollar shortage, with National Treasury Principal Secretary Julius Muia backing this up by stating that the dollar shortage crisis was most likely a result of hoarding of hard currency by importers on perceived shortages of the greenback in the market.

Interestingly, on April 25, 2022, the CBK directed commercial banks to ration dollars following a shortage of US currency. 

Digital Loans to Cost More

Meanwhile, Kenyans seeking digital loans will face higher interest rates if last-minute proposed changes are approved.

“The first schedule to the Excise Duty 2015 is amended by inserting the following proviso, excise duty on fees charged by digital lenders at a rate of 20%,” the parliamentary committee proposed on June 6, 2022.

The tax is likely to raise interest rates and other fees borrowers pay for digital loans, including those not previously regulated by the CBK. This is in addition to what is considered by many to be already exorbitant costs of many digital loans being currently offered in the market. 

The latest proposal comes amidst tight regulations on digital lenders by the CBK. 

The number of digital lenders has grown exponentially over the last few years in Kenya, and their unregulated nature has had consequences. Many have been accused of becoming predatory and unscrupulous in their loan recovery mechanisms.

CBK and the National Assembly have, for the past year, worked aggressively toward clear operating principles governing this hitherto unregulated financial space.

Tax on Tithes and Offerings?

On June 8, 2022, the High Court barred the Kenya Revenue Authority (KRA) from demanding tax on tithes, donations, and offerings without exemptions.

The ruling by Justice David Majanja which barred the taxman from demanding tax from Thika Road Baptist Church handed a huge relief to the church fraternity.

Churches are required to file annual returns but are exempt from most taxes as provided for by Section 13 and paragraph 10 of the first schedule of the Income Tax Act (ITA) and the Non-Governmental Organisations and Co-ordination Act.

Paragraph 10 of the First Schedule of the ITA exempts from paying tax, institutions, a body of persons, or irrevocable trust of a ‘public character’.

These bodies include; churches, trusts, and charities or bodies set up for the purposes of fighting poverty or distress of the public or for the advancement of religion or education.

In the case in question, the Thika-based church maintained that it was not a business activity and that it derives its income from tithes and offerings.

The case was referred to a tribunal with the church arguing that the tax demand was unfair as its sole source of income is tithes and offerings, which are not subject to taxation.

The tribunal ruled in favour of the church, finding that the commissioner of domestic taxes was incorrect in taxing tithes.

Relief For English Point Marina

Still in the courts, Justice Dora Chepkwony on June 8,  blocked the KCB Group from taking over English Point Marina, pending the determination of the case filed by the real estate firm.

“That pending the hearing and determination of this application, a temporary order if injunction be and is hereby issued restraining the 1st Respondent from appointing a receiver or receiver managers, administrators or exercising its power under the debenture,” the judge said.

Just a week earlier, KCB Group had seized the luxurious property and placed it under statutory management over a Ksh5.2 billion debt.

KCB took over English Point Marina after the bank tried several times to restructure the loan but the owners were allegedly unable to meet the payments.

The English Point Marina is one of the high-value properties that lenders had taken over default allegations.

Others include Nairobi's DusitD2, which is currently claimed by I&M Bank, as other creditors attempting to seize control of the property complex.

English Point Marina is located by the harbour, and consists of 96 apartments, eight penthouses, and a 26-room hotel. It is one of the few private projects granted the Vision 2030 Private Sector Flagship status.

More Debt For Kenya

Back in the National Assembly, legislators raised the public debt ceiling to Ksh10 trillion as a stop-gap measure to allow the next government to borrow Ksh846 billion to plug the budget deficit in the fiscal year starting July 1.

On June 8, Leader of Majority Amos Kimunya, who initiated the debate on the debt ceiling adjustment, told his colleagues that Kenya was in a situation where it could not implement the 2022/23 budget without raising the debt ceiling.

“I am looking at this debt cap increase as an interim measure. The administration coming in on August 9, should come back to this House and ensure our borrowing is at a percentage of GDP,” Kimunya argued.

The lawmakers then amended Section 50(2) of the Public Finance Management Regulations 2015 to require that “the public debt shall not exceed ten trillion shillings.”

However, the next administration will most likely be required to lift the debt ceiling again with Treasury data showing the stock of public debt will surpass the Ksh10 trillion upper limit before June 2024.

Estimates contained in the 2022 Budget Policy Statement (BPS) show the level of public debt is set to hit Ksh8.6 trillion by the end of this month, up from Ksh8.4 trillion at the end of March 2022.

The increased debt limit, however, still requires Senate approval.

Cooking Gas Prices to Go Down?

Still in the August House, MPs are working on bringing down the price of the 13-kilogramme cooking gas by at least Ksh230.

On June 3, they debated well into the night in a bid to approve changes to the law halving the value-added tax (VAT) on cooking gas – from the current 16% to 8%.

The proposed legislative changes come a year after Parliament reinstated the 16% VAT on cooking gas, which, combined with a rise in crude prices, has caused the price of a 13kg LPG to rise by Ksh900 since June 2021.

Kenyan households had been enjoying low cooking gas prices since June 2016, when the Treasury abolished the LPG tax in order to reduce costs and increase uptake among the poor, who rely on kerosene and charcoal for cooking.

However, since the imposition of the 16% VAT on LPG, the sharp rise in the cost of cooking gas has piled pressure on families that are struggling to foot daily bills.

LPG is the second most used cooking fuel in Kenya, with 23.9% of households, behind firewood which is used by 55.1%.

On June 25, 2021, National Assembly Speaker Justin Muturi rejected a proposal to delay the 16% tax on cooking gas by three years and remove value-added tax (VAT) on diesel, petrol, and kerosene.

The National Assembly speaker argued that the proposals would derail the revenue collections and hurt the financing of development projects in the coming year.

Dagoretti South MP John Kiarie had proposed to delay the imposition of a 16 percent VAT on cooking gas to July 1, 2024, and removal of a similar tax on petroleum products in a bid to protect households and consumers struggling with the financial hardships of the coronavirus.

Cheaper Electricity?

Relief could be around the corner for millions of Kenya as a major power subsidy was approved that could see a drop in the cost of electricity.

On June 2, 2022, the National Treasury offered Kenya Power a Ksh7.05 billion subsidy to allow the utility company to cut consumer electricity bills by a further 15% without hurting its cash flows.

“To shield KPLC from the effects of the electricity price reduction prior to the implementation of this second phase, the company has been allocated Sh7.05 billion in the proposed budget for 2022/23,” the Budget and Appropriations committee revealed.

The national government chose to provide Kenya Power with the subsidy in order to lower bills, and cushion consumers struggling with rising prices of essential items such as food, as well as to alleviate public outrage over the high cost of living.

Kenya’s inflation hit a 27-month high in May at 7.1%, squeezing household budgets even tighter, as millions of Kenya struggle to put food on the table.

Kenya Power, in January 2022, cut retail tariffs by 15%, which was hinged on the firm lowering system losses.

Kenya Lawmakers also agreed on the following: 

    • Capital gain tax increase from 5% to 15% should be approved.

    • Imported Cell phones should be taxed at 10% in excise duty.  

    • 7.5% tax on gaming, betting, prize competition, and lottery