Tanzania: New Tax On Banks Augurs Badly for Financial Services

There is a worry over the possibility of the access to financial services to stagnate as the government decides to charge taxes on the banking transactions.

Experts have raised the concern saying mobile money services were accelerating the financial inclusion but increased taxation would discourage their use due to high cost.

In his 2016/17 national budget speech last week, Finance and Planning minister Philip Mpango proposed to impose 18 per cent Value-Added Tax (VAT) on banking fees other than interests and introduce 10 per cent excise duty on fees received by telecommunications providers.

That will change the cost of money transfer services such as M-pesa, Tigo-Pesa, and Airtel Money. Initially only commissions from the money senders were charged by now there is a proposal of charging even receivers of the money, the Finance minister proposed.

However, Prof Honest Ngowi of the Dar es Salaam-based campus of Mzumbe University last week said that charging banks was not good because there are still many Tanzanians who are not bankable.

"The capacity of banking institutions to expand services to the communities will be affected due to introduction of VAT," says Prof Ngowi, who is a researcher in business and financial issues.

According to him, the cost of providing banking services will also go up due to imposition of such taxes. The KGMP senior manager Mr Nsanyiwa Donald also supported that people could shy away from regular sending and receiving money due to imposition of excise duties ob mobile money transfers.

A banker based in the city Mr Paul Ng'ang'a also said that the level and flow of financial penetration was set to be tilted due to imposition of those taxes on electronic and mobile money transfers.

Dr Mpango attributed the imposition of such taxes to the need to expand tax base and consequently increase capacity of revenue collection. According to him, the move was also intended to target mobile phone companies that have been charging high commissions from customers receiving money.

The mobile phone nowadays charge less commission to the senders and higher commission to receivers. To curb such loophole the government decided to impose excise to both sender and a receiver.

However, financial experts are worried about such move because the major catalysts for expanding financial inclusion, provider of mobile money services will be affected negatively.

In February this year the governor of Bank of Tanzania (BoT), Prof Benno Ndulu, said only 40 per cent of adult Tanzanians have bank accounts, calling for the need to expand banking services and integrating them with mobile financial services that are provided by mobile phone companies.

The BOT governor said financial intermediation being triggered by the growth of mobile money users is an important catalyst for financial inclusion in the country. According to Finscope survey of 2014, the number of adult Tanzanians accessing financial services reached 57 per cent in 2013.

The survey attributed to such amount of Tanzanians accessing financial services to the growth of the mobile money transfer users.

SOURCE:THE CITIZEN