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Bank service users panic

As banks move on 16.5% VAT

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John Kapito

Panic best describes the mood among bank users in the country following news that ‘some’ commercial bank services will, from November 1 2021, start attracting a 16.5 percent Value Added Tax (VAT).

In a brief statement which made rounds on social media Thursday, Bankers Association of Malawi (Bam)—an umbrella body for commercial banks in the country—says the move is in accordance with the amendment to the VAT Act during the recent meeting of Parliament.

However, none of the Bam executive members was available to shed more light on the matter.

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But Malawi Revenue Authority (MRA) Deputy Commissioner General Henry Ngutwa Thursday faulted the banks for peddling what he called misinformation.

Addressing journalists at Msonkho House in Blantyre, Ngutwa, however, acknowledged that, through Parliament’s clarification on the VAT Act, banks in the country have, from November 1, been tasked to be meeting their obligation of remitting 16.5 percent VAT from non-banking-related services.

According to Ngutwa, other services attracting VAT include fees for providing statements, payment orders or transfers and charges for providing online banking services.

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Banks will also be liable to pay VAT on credit card late payment fee or limit excess fee, charges for withdrawal from any ATM, fixed or variable fees for providing bank drafts/ wire transfers or foreign currency exchange.

Fees for processing credit or debit card payment transactions including gateway fees will also attract VAT.

Also, banks would part ways with 16.5 percent of the money they make through interchange fees between banks, interchange fees between a bank and other financial institutions or mobile financial payment services provider, merchant service fee or discount rate fee as well as point-of-sale, imprinter or terminal rental charges.

Social media was Thursday awash with messages of concern, especially from bank users, that the move would erode the already volatile buying power as the move comes at the back of elevated prices of basic commodities including cooking oil and fuel.

Consumers Association of Malawi Executive Director John Kapito said what has happened is an indication that there is more trouble coming, moving forward.

Kapito told The Daily Times that introducing VAT on services at a time customers were burdened with several other charges could be deemed punitive.

“This will negatively affect the financial inclusion drive. It is now being seen as a sin or a crime to put money in the banks,” Kapito lamented.

In a separate interview, local tax expert Emmanuel Kaluluma said the matter had been giving banks difficulties because of failure to look at the spirit of the letter of law by tax officials.

“The timing is wrong although you do not support deferment of enforcement of the law. VAT is a consumer tax and whoever says it will affect the ordinary man is spinning,” Kaluluma said.

MRA spokesperson Steven Kapoloma said services offered by banks are categorised into banking and non-banking services, according to the Financial Services Act, adding that no banking service was being taxed.

“Other banks read the same law as it was and were remitting the 16.5 percent tax while others claimed it wasn’t clear and decided not to pay. These are not new taxes but we are only saying ‘your colleagues are paying this tax and everyone should start paying by November 1’.

“In this case, there is no justification for the banks to increase the service fees of these services and we hope they will not increase the fees because, with the very same fees, other banks were remitting the taxes,” he said.

Ministry of Finance spokesperson Williams Banda said the tax was aimed at enhancing efficiency in revenue collection in non-banking services.

“The commercial banks will not be allowed to increase their charges based on the move but they will be contributing into the revenue purse from the money they were already collecting,” Banda said.

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