Financial services tax

Value-Added Tax (VAT) on Financial Services 

Introduction of VAT on Financial Services

• The Bill proposed imposing a 16% VAT on financial services. 

• Imposing VAT on financial services could lead to higher fees for banking and related services, potentially discouraging the use of formal financial systems and pushing individuals towards unregulated cash transactions​​​​.

Committees recommendations and worries

• This proposal was recommended for deletion by the Departmental Committee on Finance and National Planning​​​​​​.

• The rationale behind the deletion is to avoid increasing the cost of financial services, which could hinder financial inclusion by making these services less accessible to the general population​​.

• The Committee observed that the introduction of VAT on financial services would raise the cost of banking services, thereby affecting consumers negatively. This could also impact the insurance, manufacturing, and fintech sectors​​​​.

Excise Duty on Money Transfer Services

Increase in Excise Duty

• The Bill proposed increasing the excise duty on fees charged for mobile money transfer services from 15% to 20%​​.

• This proposal was met with opposition, as it would increase the cost of mobile money transactions, which are widely used by small-scale businesses and low-income individuals​​.

Committee recommendations

• The Departmental Committee on Finance and National Planning recommended maintaining the current excise duty rate of 15% to avoid increasing the financial burden on consumers and to support financial inclusion​​.

Changes from 18th June Meeting

The proposal in the Finance Bill to impose 16% VAT on financial services (including money transfer services, issuing of debit/credit cards) has been dropped, and the services are to be retained as exempt from VAT.