Banking & Finance Government Ministries

Cost Of New Bank Service Tax May Be Passed On To Customers

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 Fees on financial services including money transfers, loan assessments and account maintenance services will now be subject to the 10 percent VAT, as well as any service that traditionally generates revenue under fees and commissions. 

A prakas issued by the Ministry of Economy and Finance on May 25, that more clearly defines the government’s laws for nontaxable supplies of the banking sector, has been met with concern from industry leaders who warned that the costs of the 10 percent value-added tax on financial service fees would likely be passed on to customers.

 ACLEDA Bank president and group managing editor In Channy said yesterday that, while all financial services had previously been understood to be under the blanket definition of nontaxable supplies, the new decree had stated that only loan interest repayments and money exchange services were now exempt from the VAT. “Customers need to pay a bit more to use financial services,” said Channy. “Please do not confuse that the banks are charging these additional fees. The revenue from VAT is for the Finance Ministry, and this will contribute to enlargement of our national budget.” 

Stephen Higgins, managing partner at investment firm Mekong Strategic Partners, called the tax “impractical and inefficient” and said there was a reason why the rest of the world, with the odd exception, doesn’t have it. “Banks will have to make significant IT investments to be able to properly manage VAT on fees, including the provision of tax invoices,” he said. 

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