Tanzania: Final Say On Value Added Tax for Bank Deals

Customers will not be charged extra money

Banks will have to deduct 18pc from fees

Weeks of confusion over 18 per cent Value Added Tax (VAT) on bank transactions yesterday came to an end after Finance and Planning Minister Dr Philip Mpango clarified that the amount will be levied from the transaction fee that banks impose on customers.

Therefore, according to the minister, customers will not be charged extra money and instead banks will have to deduct 18 per cent from the fee to cover VAT. Dr Mpango was speaking after opening a capacity building workshop for internal auditors organised by the Japan International Cooperation Agency (JICA) as part of the corporation's funded Capacity Development Project.

The clarification came at the time when the public was in a thick forest -- not knowing who actually was supposed to bear the cost. While the minister has capitalised on his previous stance, various banks had already started circulating messages to their customers, directing that there will be new charges in relevance to government's move to introduce the tax.

The 'mystery' deepened more when two government institutions --Tanzania Revenue Authority (TRA) and Bank of Tanzania (BoT) gave different interpretations relating to the new charges.

While TRA argued that the tax should be borne by the banks and financial institutions, the central bank maintained that customers should carry the burden.

The interpretation mismatch from the two institutions falling under the same ministry had even thrown the public into a tight spot, with others questioning why the minister was not immediately coming out of shell to shed the light.

Giving clarification to journalists in Morogoro yesterday, Dr Mpango insisted that customers were already being charged by banks and would, therefore, not be charged again.

In its place, he maintained his previous stance that the government will impose the tax on transaction fees charged by financial institutions. Principally, the burden of the tax falls to the final consumer while banks are only required to administer it.

However, economists put it clear that there was no need to charge customers the 18 per cent VAT because final consumers were already being subjected to transaction fees.

For instance, he said, a bank charges its customer 1,000/- transaction fee, the government will impose the 18 per cent VAT from the charge, noting that the transactions fees charged by banks were not something new.

Last week, TRA Principal Research Officer, Mr Beldom Chaula, said in Dar es Salaam that there has been confusion among the public on the said 18 per cent VAT.

He said some people have been misleading the public by saying that 18 per cent VAT on financial transactions will be charged from the amount that is withdrawn or deposited by customers. Instead, the TRA official said, VAT is charged from the set transaction fee.

"TRA does not charge tax from bank's transactions or interests, the 18 per cent VAT is imposed on the transaction fee and not the whole deposited or withdrawn amount," he explained.

Presenting the 2016/17 national budget in Dodoma last month, Dr Mpango proposed Value VAT on fee based financial services; a move he said will widen the tax base and increase government revenue. The proposal was later endorsed by MPs.

Source: Tanzania Daily News