The number of Tanzanians using formal financial services has quadrupled over the last decade. In 2009, only 16 per cent of adult Tanzanians had access to formal financial services. But the number grew to 65 per cent in 2017.  These stats on financial inclusion are in the FinScope Tanzania 2017 report published by the Financial Sector Deepening Trust (FSDT). Adoption of agency banking model by banks in Tanzania (agent banking), is one of the drivers of financial inclusion. The interplay of bank agents' services with mobile money services, mobile banking, ATMs, internet banking and digital payment systems could be another factor driving financial inclusion. The FinScope Tanzania 2017 says most financial service providers within a 5km radius of the surveyed areas were mobile money agents. But, over 60 per cent of the surveyed bank agents were also mobile money agents.

 In 2013, BOT issued agent banking guidelines which served to allow banks to subcontract agents on offering services like account opening, deposits, withdrawals, and loan applications on their behalf. This created a new form of business and a new source of income as agents earn commissions for their services. The number of agents has been booming. The Directorate of Banking Supervision of the Bank of Tanzania (BOT), reported 10,665 registered bank agents by December 2017, who facilitated over 4.6 trillion shillings in deposits and 1.1 trillion shillings in withdrawals in 2017. By end 2019, two major banks (CRDB and NMB) reported close to 21,000 agents. Going by the 2017 stats, the two banks accounted for almost 70 per cent of the registered bank agents.  

Tax on agent commissions

Using POS (Point-of-Sale) gadgets facilitation of "cash-in" and "cash-out" is one of the notable services of the bank agents. Starting from 1st July 2020, the commissions earned by agents for these and other agency services are subject to a 10 per cent withholding tax (WHT). Just like commissions earned by the mobile money agents from the telecoms. This is according to the Finance Act, 2020. But the agent banking business is, arguably, in its infancy-especially if one compares the numbers with those of mobile money agents. In its 2019 annual report, Vodacom Tanzania had over 106,000 M-Pesa agents countrywide:  five times the number CRDB and NMB combined.

 Similarly,  from July 1 2020, a 10 percent WHT applies on fees, commissions, or any other charges payable to digital payment agents, defined as a person who renders digital payment services at a fee, commission, or any other charges. Payment services by the likes of Selcom and MaxMalipo may fall under this category.

 Under WHT system, the obligation to remit the tax fall on the person making the payment. So, while the bank agents bear the WHT burden, banks are obliged to deduct the tax when paying the commissions and remit the same to TRA. Likewise, for the digital payment agents, the obligations to deduct and remit WHT falls on the person paying the commissions or fees. But WHT may present some practical challenges to banks. Dealing with a huge number of agents is one issue both in terms of WHT returns and issuance of WHT certificates -despite the existing online features. When to start 'withholding' is another nightmare. Normally the commissions are accrued monthly and get paid within the following month. So, commissions accrued in June (or earlier) are paid to the agents within July (or after). The question is, should WHT apply to commission earned by agents before July 1, 2020 but paid on or after July 1, 2020? It sounds simple but can be very tricky to decide “correctly”.

By Shabu Maurus, Tax Partner, Auditax international.