MPs ride on tax law to tame commercial banks

Parliament on Wednesday moved its war against banks a notch higher with a firm promise that an amendment seeking to regulate interest rates will be introduced into the law that gives government the power to charge tax when it comes before the House this afternoon.

Also read: Treasury hardens stance on interest rates control

Acting Finance minister Njeru Githae is expected to table the delayed Finance Bill — which contains the government’s tax plans — in the House on Thursday afternoon after failing to negotiate his way out of the stand-off with the MPs over control of interest rates.

The Finance Bill, whose passage is key to the government continuing to levy new taxes it introduced in the current year’s budget, goes to the Committee of the Whole House stage where members are allowed to amend.

Gem MP Jakoyo Midiwo is expected to move the amendment, seeking to cap the lending interest rates at not more than four percentage points above the Central Bank Rate and deposit rates at 70 per cent of the CBR.

The Central Bank Rate stands at 18 per cent, meaning that banks could be forced to charge borrowers a maximum of 22 per cent interest on loans and pay 12.6 per cent interest on deposits.

Its real import would be to reduce the lender’s margins from about 15 percentage points to about nine percentage points.

Contrary to the expectation that controlling interest rates would automatically lead to a drop in lending rates across the board, official data shows that the cappings would raise the average lending rate to 22 per cent from its current level of 19.6 per cent.

If passed, the amendments will put the House on a collision course with the Executive and the International Monetary Fund that are opposed to interest rate controls, citing overall negative impact on Kenya as an investment destination and a drawback on access to loans especially for low income households.

Parliament set the stage for the divisive debate when it adopted the report of the ad hoc committee it constituted to investigate last year’s unprecedented erosion of the shilling.

Mr Midiwo, who is the chief whip for the ODM wing of the Grand Coalition government, called on MPs to rally behind him when he moves the amendment this afternoon “to protect Kenyans from high rates.”

“Why are Kenyans being charged at the rate of 32 per cent for an ordinary loan? I appeal to you to ensure that we reform the financial sector through the Finance Bill and ensure interests are controlled,” he said.

Mr Githae, however, told the House the amendment would “deal a serious blow to economic development.”

Former Finance Minister Uhuru Kenyatta withdrew the Bill last year to give room for negotiations between the banking sector and legislators but no agreement has been reached after nearly three months of talks.

Lending rates shot up to as high as 32 per cent in November last year as the CBK introduced emergency measures to stop the shilling’s slide to an historic low of 107 units to the dollar.