VAT on bank fees stirs debate, confusion

Malawians yesterday took to the social media to protest introduction of 16.5 percent value-added tax (VAT) on banking services fees following a Bankers Association of Malawi (BAM) announcement.

BAM chief executive officer Lyness Nkungula said in the statement that effective November 1, VAT would be applicable on some banking services following the amendment of the VAT Act during the Budget Meeting of Parliament in July.

Reacting to the announcement, Consumers Association of Malawi executive director John Kapito condemned the move and feared it would push more Malawians into financial hardships as they are already burdened with other banking services charges.

He said: “Malawian consumers are consistently complaining about the already high bank charges and VAT on the very same services is retrogressive as consumers will withdraw and move away from depositing and keeping their money with the banks.”

Kapito also said the move will negatively affect the financial inclusion drive where Malawians are being encouraged to save money with the banks and use electronic payment platforms.

He said: “The number of Malawians with bank accounts is already minimal when compared to our peers in the region and now with this, the whole concept of financial inclusion will surely be put to bed.”

In the heat of the debate, Malawi Revenue Authority (MRA) moved in to clarify that the amended VAT Act was not a new law such that banks were not expected to hike their service fees in reaction.

Briefing journalists in Blantyre yesterday, MRA director of corporate affairs Steve Kapoloma said government is not charging VAT on banking services nor is it charging the same on some banking services.

He said: “The law is very clear that VAT is only applicable on non-banking services that are being provided by the banks. Banks provide two services, banking and non-banking services and the law recognises that those non-banking services should be charged VAT.

“What is now going to happen is that these non-

 banking services have been attracting VAT since the VAT Act was enacted. The VAT Act only exempts banking services from charging VAT, but for non-banking services, VAT is applicable and has been applicable since time immemorial.”

Kapoloma said MRA has only provided a clarification to remind banks that they have an obligation to ensure that the charges they levy on their customers are VAT-inclusive.

He said: “There have been banks in Malawi that have already been charging VAT on some of the charges and commissions they were levying on their customers while others were not. We, therefore, have done this to make things uniform.”

On his part, MRA deputy commissioner general Henry Ngutwa emphasised that the law has not changed; hence, they do not expect banks to adjust their service fees to hurt the consumer.

H e s a i d : “ I f t h e banks insist on making adjustments because of the issues, it would be their own business decision, but we do not see any justification for any bank to increase their fees and our expectation is that they will not do this because banks are already supposed to pay VAT on the current prices.”

In an interview earlier yesterday, Ministry of Finance spokesperson Williams Banda also allayed consumer fears, saying the tax is aimed at enhancing efficiency and will not affect consumers.

He said: “There shall not be any VAT on deposits or withdrawals by bank customers, but non-banking services provided by the bank.

The VAT (Amendment) Act outlines the non-banking services that will attract VAT include

administration fees for providing statements, payment orders or transfers and charges for the provision of online banking.

The VAT will also be applicable on credit card late payment fees or limit excess fees, charges for withdrawals from automated-teller machines, fixed or variable fees for providing bank drafts, electronic transfers and foreign currency.

Services such as safekeeping and safety deposit boxes, interchange between banks and merchant service fees or discount rate fees a will also attract VAT.

Nkungula yesterday said she needed more time before she could comment.

When delivering the 2021/22 National Budget in Parliament, Minister of Finance Felix Mlusu said there was confusion over certain transactions which are not banking in nature, but are treated as banking services hence not subjected to VAT.

He said the government would ensure that this was cleared to clarify which transactions are banking so that VAT is charged on the non-banking services in line with the law.