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Tax experts have expressed mixed views on the implementation of withholding tax on bank interest, arguing that other banks have misunderstood it while others say it is complicated in the way interest is interpreted.

In the 2017/18 National Budget, Minister of Finance, Economic Planning and Development Goodall Gondwe announced change of the description of withholding tax on bank interest to interest.

Gondwe presents the 2017/18 National Budget

He said the description of the term interest in the Taxation Act limits withholding of tax to interest earned at a bank.

Gondwe highlighted that interest is earned from different sources of income, apart from investments made at commercial banks; hence, the change.

But in an interview yesterday, tax expert Emmanuel Kaluluma said it seems even the banks are not conversant with the amendment of withholding tax.

“In the Act, withholding tax does not apply to passive income such as rent, bank interest, commissions which means even if someone has an exemption certificate, withholding tax has still got to be applied.

“But because withholding tax is another form of tax, organisations  mentioned have to be exempted from tax and the amendment says that if those organisations are being paid interest because of the money that they have put in the bank, no withholding tax should be applied,” he said.

Kaluluma said the amendment does not include banks, adding that the law is clear that exemption certificates cannot be applied on payments such as bank interests.

Tax expert Misheck Msiska, who is a partner at audit and tax advisory firm EY, said though the obstacle of the tax amendment might not be there when it is a transaction between non-banking institutions to another, the complication rests in the idea that interest is spread across.

He said in practice, borrowers do not write a cheque, it is just the bank debiting the borrower; hence, there might be a complication on how the withholding tax would work effectively.

“As it was previously, interest was not subject to withholding tax except for banking interest.  Then, non- banking institutions did not deduct any withholding tax and if that institution had to pay money to a bank in form of interest on borrowing by me as an institution or individual, then there should not be any withholding tax on interest payable to the bank, but interest payable by the bank was subject to withholding tax,” said Msiska.

He, however, said withholding tax, which is just an advance payment of income tax; hence, increasing withholding tax deduction might not necessarily result in increased income tax collection.

Malawi Revenue Authority (MRA) head of corporate affairs Steven Kapoloma yesterday said they are yet to assess the impact on revenue collection but it is in effect.

“Previously, withholding tax was charged on bank interest and not on other avenues. Government was losing out on the money kept in those other avenues such as trusts because these are not grouped as banks,” he said.

The post Mixed views on banks’ withholding tax appeared first on The Nation Online.



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