Mining & Trade News

The announcement by the Bankers Association of Malawi (BAM) to introduce a 16.5 percent Value Added Tax (VAT) on various banking services that its members offer to their customers, attracted an immediate public reaction after it was made on Thursday.

The statement signed by BAM’s Acting Chief Executive Officer, Lyness Nkungula, says the association made the decision following a recent parliamentary amendment to VAT Act.

“Bankers Association of Malawi on behalf of its members…. would like to inform the general public that from 1st November, 2021 some of its banking services will attract Value Added Tax (VAT) at 16.5 percent,” reads the statement in part.

The development sparked a national debate with people protesting the pronouncement saying charging customers on every banking transaction only serves to stifle the economic well-being of Malawians, most of whom earn their livelihoods through precarious informal jobs.

Prevailing comments on the social media indicate that people expect the banks to start charging 16.5 percent VAT on bank transactions such as deposits and withdrawals.

“This means that the government introduced MK100,000.00 free tax band is now useless as it will be eaten away by the banks,” notes one commentator.

Economist, Prof. Ben Kalua explains that the introduction of the tax on banking services will not directly affect low income people because they rarely, if at all, use banking services.

“It is a welcome move since poor people are already financially excluded from using banking services,” says Kalua.

However, the Malawi Revenue Authority (MRA) has cleared the mist saying the BAM statement has misled the public because the tax measure does not in any way affect normal banking transactions such as deposits and withdrawal of money.

Briefing the press, MRA Deputy Commissioner, Henry Ngutwa, explained that parliamentary amendment is intended to ensure that banks must meet their obligation of settling 16.5 percent of what they charge their customers on non-related banking services such as printing bank services, ATM charges and fees for processing credits.

The revenue generating body has also said, following the clarification, it does not expect banks to increase their charges.

But commenting on the merits of the Act to clarify banking services and widen the tax base, Prof. Betchani Tchereni says the tax initiative is part of Malawi’s drive towards creating internal sources of revenue as the country drifts away from external sources of income.

“We really need to broaden our tax base,” he says observing that the country experiences pressure to implement its developmental programmes because its development financing is heavily and hugely dependent on external sources as less than 50 percent of its population pay taxes. “We really need to have our own sources of income so that we can do more infrastructure developments and provide social services of higher quality,” Tchereni says but was also quick to note that the proposed tax was likely to affect the customer base of various banking institutions as low income generating people will probably decide to seek for other money saving means in a bid to run away from the 16.5 percent banking VAT.

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