More banks to charge VAT on services

Dar es Salaam. An increased number of banks will start charging Value Added Tax (VAT) on their fees and charges starting September 1, 2016 as the taxman and commercial banks have reached an agreement on the modality and applicability of the levy.
The idea – contained in the budget for the financial year 2016/2017 – was meant to become operational on July 1, 2016 but it had to be delayed as players got embroiled in the modality and applicability of the levy.
However, some banks raised their charges and fees effective July 1 to reflect the newly imposed VAT.
Applicability of the tax divided two organs within the Ministry of Finance and Planning with the Bank of Tanzania saying the burden of the levy should be borne by the final consumer while Tanzania Revenue Authority (TRA) says it has to be shouldered by the service provider.
It also left commercial banks divided on what to do. Basically, VAT is refundable and one paying it has to receive a receipt, something that made it increasingly difficult for TRA to apply it even after the new financial year officially started on July 1, 2016.   
But finally, the differences are gone. “The money will be deducted from what the commercial banks earn in fees and other charges and the agreement to that goal has already been reached,” the TRA director of education and taxpayer services, Mr Richard Kayombo told The Citizen on Friday.
This means that the modality to be used will be one where TRA will use the banks’ financial statements in order to get a clue of how much each of Tanzania’s financial entities has collected in fees and commissions and thus be able to ascertain the right amount to be collected as VAT.
The commercial banks will be required to prepare financial statements on monthly basis and submit them to TRA for purposes of calculating the right amount of VAT to be charged.
Apparently, it was after the agreement that some commercial banks started sending messages to their clients, informing them that they will start charging VAT from September 1, 2016.
With the growing rivalry among commercial banks in the country, it is anticipated that some will shoulder the VAT and absorb them on their existing fees and commissions while others will transfer the same to final consumers.
“Dear valued customer, we would like to inform you that we shall be introducing VAT-inclusive pricing with effect from 1st September 2016. Thank you,” reads a statement, sent to a client for one of the commercial banks on August 16, 2016.
Tanzania is home to 41 commercial banks, three financial institutions, 12 community banks, four deposit-taking micro-finance banks and three financial leasing companies.
A recent analysis, conducted by The Citizen, established that the ten largest corporate and commercial banks raked in a cool Sh235.5 billion in fees and commissions from January 1 to June 30, this year. This is a 16 per cent increase on the sum recorded in the same period last year. Had the imposition of VAT taken effect on January 1, 2016, the government would have collected Sh42.39 billion in revenue.
Banking services which customers pay for include cash withdrawals; account maintenance; mobile banking; internet banking; statement requests; funds transfers and balance inquiries.
However, services and rates differ from one lender to the other.