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On bank services charges debate

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November could be rated as a month of uncertainty and dilemma for bank customers as, although for a short time, commercial banks moved to pass on to them the obligation to pay a 16.5 percent Value Added Tax (VAT) on ‘some’ services charges.

In what could best be described as a battle of supremacy between the banks and government agencies like the Malawi Revenue Authority (MRA), the consumer was seen as the ultimate victim.

Controversial as the VAT might be, its passing to the consumers brought about anxiety, especially that, already, the cost of other basic commodities remained elevated coupled with a continued dwindling of buying power.

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In Malawi, especially at this point, no one would yearn to pay an extra cost one anything else, more especially on transactions of the hard earned money.

The beginning

Albeit the growing concerns of the every skyrocketing cost of living, On November 1, the banks went ahead to revise their charges on non-banking services, reflecting the tax.

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They said it was in accordance with the amendment of the Taxation Act which was passed earlier by Parliament.

As such, the banks, or rather some, decided to pass on the task of payment of the required tax to the consumers, a decision which was latter reviewed by individual commercial banks.

For example, MyBucks Banking Corporation announced that from current account bank cheque issuance, be attracting fees of K34,950 from K30,000, bank statement per page would attract K6,408 from K5,500 while a draft would be sourced at K23,300 from K20,000.

However, three weeks later, the banks have published fresh statements indicating a downward review of the service fees where, in some cases, the charges are below the initial charge.

For MyBucks Banking Corporation, current account bank cheque issuance will now attract K27,000, bank statement per page will attract K5,000 while a draft will be sourced at K15,000.

Earlier, NBS Bank customers were advised that they would be paying K5,825 for a savings account statement after factoring in the VAT but its recent statement indicates that the service will only attract K2,500 before VAT.

National Bank of Malawi and Ecobank, which did not revise their fees at the beginning of the month, have also recently issued statements highlighting reduced charges on certain fees.

For example, Ecobank has reduced the charge for ATM cash withdrawal to K250 from K300 and same-year statement for a savings account to K2,790 before VAT from K6,000. National Bank has also reduced statement – within – a month per page to K1,500 from K4,370, among others.

But why did the banks move to effect the changes in the first place, only to review their rates days later?

The contradiction

Bankers Association of Malawi Chief Executive Officer Lyness Nkungula rates the earlier decision by the banks as business-oriented.

But the revision was in reaction to the customers’ outcry over economic hardship.

“In the first place, the fees were not raised. It was just the inclusion of VAT. VAT is supposed to be borne by the consumer and banks in this case are the collecting agents.

“The reduction in fees means reduction in income for the banks. Since this is individual bank’s business decisions, it must have been well analysed and agreed by the shareholders and management,” she said.

She said this is a crucial time when banks are driving digital banking and financial inclusion campaigns which can be hampered if bank services are deemed to be expensive.

But MRA officials are on record to have said that the amendment to the VAT Act did not introduce any new Vat and, thus, banks were not supposed to pass it on to consumers.

The revenue collection body has maintained its narrative all along, faulting the banks for peddling what it called misinformation.

When contacted last week, MRA Head of Corporate Affairs Steve Kapoloma said the banks were within their legal mandate to make their decisions, adding that they had been remitting their taxes to the authority as required by the law.

Nonetheless, the banks will not be bound to refund the money deducted when the rates were adjusted, according to spokesperson for the Ministry of Finance, Williams Banda.

Moving forward, Banda says while businesses are free to make decisions motivated to make profit, banks should not hide behind taxes when increasing their rates.

“Our understanding was that those non-banking fees already have VAT since the law says VAT should apply. The only thing that banks needed to do was to start remitting the Vat to MRA.

“We cannot comment on whether the increase in the fees is justifiable or not because business in Malawi are at liberty to charge the fees they think makes sense for their business. However, when they do that, they should not hide behind Taxes,” he said.

He says the VAT Act is clear in that it mentions all services or goods where VAT should not apply (exempt or zero rates supplies).

Anything that is not mentioned, according to Banda, means there is standard rate VAT.

Non-banking services are not on either exempt list or zero-rate list hence they have always been taxable at the standard rate of VAT of 16.5.

Way forward

The conversation over the Vat on banking services has clearly reflected the glaring knowledge gap on taxation and financial issues.

It is clear that while the country is advancing the financial inclusion narrative, the gyre widens.

With a recent FinScope Malawi Survey showing that 67 percent of adult Malawians have no bank accounts, it is high time ‘prohibitive’ bank charges be looked at a matter of concern.

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