Tax officials have denied local media reports of a new value added tax (VAT) on financial service users, saying the government had not set any new tax but was to enforce the existing one.
Reports last week stated that banking sector leaders were concerned about additional fees on financial services, with the Ministry of Economy and Finance issuing an order on May 25 that more clearly defined the government’s laws for nontaxable supplies.
The decree identifies five financial activities eligible for an exemption from the 10 percent VAT, including stock market transactions, while potentially exposing other financial services to VAT.
In Channy, president and group managing director of ACLEDA Bank, could not be reached for comment. He was quoted by local media last week as saying that before the order all financial services were understood to be under the blanket definition of nontaxable supplies.
However, now the only ones that are exempt are loan interest repayments and money exchange services. Fees on financial services including money transfers, loan assessments and account maintenance services will now be subject to the ten percent VAT, as well as any service that traditionally generates revenue under fees and commissions, he said.
“Please do not be confused that the banks are charging these additional fees,” he said. “The revenue from VAT is for the Finance Ministry, and this will contribute to enlargement of our national budget.”
Kong Vibol, director-general of the general department of taxation said the announcement by the Ministry of Economy and Finance last month was to clarify confusion among financial institutions over the definition of some terms and the definition on the basic service fee for the financial sector.
“We have not set up a new tax on the financial sector. That is the source of confusion,” said Vibol. “VAT has been implemented since 1999 so the recent announcement just makes clear the definition of basic financial services for consistent implementation of VAT.”
Vibol noted that the order was another action by his department to reinforce tax collection. “This is part of our work to enforce revenue collection because some financial institutions are still not quite clear about it,” he added.