VAT on banking services described as inefficient

The new prakas (regulation) that identifies five financial activities eligible for an exemption from the 10% value-added tax (VAT) potentially exposes other banking services, which were previously understood to be under the blanket definition of nontaxable supplies, to VAT. Under the clarified definition, the only financial services that are exempt are loan interest payments and money exchange services, while fees on money transfers, loan assessments, account maintenance services, and any services that traditionally generate revenue under fees and commissions, will now be subject to the 10% VAT, according to In Channy, president and group managing director of Acleda. He added that the tax would be passed along to customers. Bun Mony, advisor to the Cambodian Microfinance Association (CMA), said the move to impose VAT on such services came unexpectedly, as in the past the government did not identify which banking services were subject to VAT. Stephen Higgins, managing partner at investment firm Mekong Strategic Partners, described the move as impractical and inefficient, explaining that banks will have to make significant IT investments to be able to properly manage VAT on fees, including the provision of tax invoices. (Source: Phnom Penh Post)