Online Reporter
THE Bankers Association of Zimbabwe (BAZ) has welcomed the Government’s decision to classify interest paid on deposits as a tax-deductible cost, saying the long-awaited reform will strengthen savings mobilisation and improve the stability of the financial system.
In its response to the 2026 National Budget, BAZ described the move as a positive and progressive development that aligns the tax regime with the operational realities of the banking sector.
“We welcome this as a positive and progressive development, which was one of the key recommendations in our pre-budget input,” the association said.
“By making interest expenses tax-deductible, banks are better incentivised to offer competitive rates to depositors. This should significantly aid in mobilising savings and encouraging the growth of long-term fixed deposits within the economy.”
BAZ noted that some technical matters still need to be clarified ahead of implementation.
“There are areas that we will need to iron out with the authorities on the implementation of the same, especially on the effective date,” it added.
CBZ Holdings chief executive officer Mr Lawrence Nyazema believes that allowing interest on deposits to be a deductible expense for tax purposes is a positive development.
“It will reduce the effective tax burden on banks’ interest costs, improving after-tax profitability and possibly encouraging more aggressive deposit mobilisation,” he said.
In the long term, he added, this could support growth in time and fixed deposits as banks pass on part of the benefit to depositors through slightly higher rates.
“However, there is a need to ensure that the definition of deposits encompasses credit lines and loans, and bonds raised by banks,” said Mr Nyazema.
“Otherwise, credit lines, which have been a key source of liquidity for the country, will become too expensive and less attractive to banks as a source of liquidity.”
Presenting the 2026 National Budget recently, Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube emphasised that the policy corrects a long-standing misalignment between how banks earn income and how they are taxed.
“Financial institutions play a pivotal role in mobilising savings and channelling them towards productive sectors of the economy,” he said.
“A significant proportion of bank liabilities comprises deposits held by individuals, corporates and institutional clients. In order to mobilise and retain these deposits, financial institutions incur interest expenses, which constitute a core cost of doing business.”
Mr Nyazema said legislation unfairly inflated bank profits by treating this unavoidable cost as non-deductible.
“This restriction creates a mismatch between income earned and expenditure incurred, overstating taxable profits and increasing the effective tax burden,” he said.
With effect from 1 January 2026, interest paid on deposits will be treated as a deductible expense, subject to safeguards that include transfer pricing rules, thin capitalisation tests and anti-base erosion provisions.
Prof Ncube said the reform brings Zimbabwe in line with international norms, and supports efforts to strengthen financial intermediation and improve credit flows to productive sectors.
Economist Mr Enoch Rukarwa said the change was particularly encouraging for the local banking sector, which has seen lending margins squeezed by competition and rising operational costs.
“This is an encouraging development, especially for the banking sector, as it broadens the interest margin for the financial services sector,” he said.
“What we have been seeing is that the margin has been under pressure given the competition that exists, especially between local banks and international banks.”
Mr Rukarwa noted that the relief will mainly benefit locally owned institutions.
“This reprieve will ensure that the interest margin will definitely broaden, especially for the local banks that have been dominating the largest portion of these fixed-term deposits which carry an interest expense, as opposed to international banks which have a small portion of their deposits being fixed-term deposits,” he said.
Investment banker Ms Chikomborero Gwata said the measure was long overdue.
“This is a positive change for the sector because it frees up capital that was previously locked up in avoidable tax obligations,” she said.
“If banks can retain more earnings, they are better positioned to extend credit, modernise their systems and compete for deposits.”
Ms Gwata said more competitive deposit rates may draw funds back into the formal system.
“Increased deposits translate to increased lending capacity. Over time, it could help lower the cost of credit by improving liquidity conditions,” she said.
Some experts have urged caution.
Veteran banker Mr Raymond Madziva warned that the reduction in taxable profits could impact Government revenues.
“Allowing deductibility means taxable profits for banks will immediately fall and that has implications for revenue targets,” he said.
He flagged potential compliance risks.
“There is always the risk that some institutions may attempt to inflate interest expenses through related party arrangements or complex deposit structures,” he said.
“Transfer-pricing rules can help, but enforcement capacity is crucial.”
Mr Madziva said the broader weaknesses of the banking sector — shallow long-term deposits, public mistrust and a preference for United States dollar cash outside the system — remain the real structural challenges.
“Tax incentives help at the margins, but what the sector needs more is macroeconomic stability and consistent policy signalling,” he said.
Analysts say the measure could strengthen the formal savings market and create room for more productive lending, provided regulators maintain strong oversight.
Strict adherence to anti-abuse rules, regular reviews and close co-ordination between the Treasury, the Reserve Bank of Zimbabwe and the banking industry will be essential.
For the economy, greater confidence in banking products can help shift savings away from informal and speculative channels towards long-term, stable instruments.
