FBC in US$10m tax dispute with Zimra

Tapiwanashe Mangwiro

FBC HOLDINGS is embroiled in a US$10 million tax dispute with the Zimbabwe Revenue Authority (Zimra), with the financial services group maintaining that it does not owe the assessed amount and expressing confidence that it will successfully challenge the claim through the courts.

The dispute relates to the treatment of interest expenses under Zimbabwe’s Income Tax Act and arises from tax assessments covering the period between 2019 and 2024.

According to the group’s 2025 financial statements, FBC said it is engaged in ongoing discussions with the revenue authority over how certain historical transactions should be treated for tax purposes.

The banking group insists that its interpretation of the law is correct and has therefore not recognised the disputed amount as a liability in its accounts.

Should Zimra’s position ultimately prevail, however, FBC could be liable for additional taxes amounting to approximately US$9,4 million and ZiG49,4 million, excluding penalties and interest.

When penalties and interest are factored in, provisional assessments issued by the tax authority could rise to US$18,2 million and ZiG72 million.

Addressing analysts last week, FBC Holdings chief executive officer Trynos Kufazvinei said the group had subjected the matter to thorough scrutiny with its advisers and board before classifying it as a contingent liability.

“It is a liability we have not provided for because the issue is still under discussion and remains somewhat vague,” Mr Kufazvinei said.

He said that the bank’s legal and tax advisers had examined its interpretation of the law, particularly the definition of gross income and the application of Section 16(1)(o) of the Income Tax Act, which underpins Zimra’s assessment.

“Based on the statutes that we have, according to our own income tax and the definition of gross income, and with lawyers and tax consultants explaining the section Zimra is using, we believe our position is correct. That is the reason why our auditors, our lawyers and our board all agreed that this should be treated as a contingent liability,” Mr Kufazvinei said.

He acknowledged, however, that litigation outcomes are never guaranteed should the dispute proceed to court.

“When you go to court, the outcome is never 100 percent guaranteed. But where we believed something was clearly a liability, we provided for it in the financial statements.”

Beyond the accounting considerations, Mr Kufazvinei revealed that the dispute had temporarily threatened FBC’s access to foreign credit lines, which are critical for supporting lending in the domestic economy.

He said the group had been preparing to halt close to US$80 million worth of such facilities after the tax assessments created uncertainty around the deductibility of interest expenses.

“We were about to stop with about US$80 million or so in credit lines. When Zimra raised the issue, we had to say we cannot take them anymore to support the economy because this takes a hand back to us.”

Foreign credit lines are a vital source of funding for Zimbabwean banks, enabling them to extend loans to businesses in sectors such as agriculture, manufacturing and mining.

The matter was subsequently escalated by the Bankers Association of Zimbabwe to the Ministry of Finance, Economic Development and Investment Promotion, leading to a policy shift announced in the 2026 National Budget.

Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube acknowledged that existing tax provisions posed challenges for financial institutions.

“Under the current legislative provisions, interest expenses incurred by financial institutions on deposits are not deductible for tax purposes, despite being a legitimate and unavoidable cost directly incurred in the production of taxable income. This legislative restriction creates a mismatch between income earned and expenditure incurred, thereby overstating taxable profits and increasing the effective tax burden on the banking sector,” Minister Ncube said in his budget speech.

He proposed that interest expenses on deposits be recognised as tax deductible, subject to safeguards against abuse, including transfer pricing and anti base erosion measures. The new arrangement will come into effect on January 1, 2026.

Banker Mr Raymond Madziva said the dispute underscored the importance of regulatory clarity in sustaining confidence in the financial system. He noted that predictable and consistent tax treatment is central to how banks structure funding and secure offshore capital.

“When you have ambiguity around something as fundamental as the deductibility of interest costs, it creates hesitation within the banking system,” Mr Madziva said on the sidelines of the analyst briefing.

“Banks become cautious about raising foreign funding or expanding their lending books because they cannot fully quantify their tax exposure.”

Mr Madziva welcomed the legislative correction, saying it should reassure lenders and investors.
“The fact that the Treasury has acknowledged the mismatch and moved to correct it is positive. It restores confidence that policy makers are willing to engage with the sector and resolve technical issues that could otherwise undermine financial intermediation.”

He added that greater certainty would strengthen banks’ capacity to support economic growth.
“When banks have certainty around their cost structures and tax treatment, they are far more willing to mobilise capital and extend credit to productive sectors.”

Investment analyst Mr Leo Kaguru said the case demonstrated how technical tax disputes can carry broader economic implications.

“From the outside, it might look like a dispute over interpretation of tax law, but the ripple effects can be quite substantial. If banks scale back foreign borrowing because of tax uncertainty, the immediate impact is reduced liquidity in the financial system,” Mr Kaguru said.

That reduction, he said, could restrict lending to companies already facing constrained access to capital. Mr Kaguru said the policy adjustment signalled an effort by authorities to safeguard stability in the financial sector.

“Allowing interest expenses on deposits to be deductible simply aligns the tax treatment with the economic reality of banking. It ensures that taxable profits reflect the true cost of doing business.”

He said resolving such issues was critical for maintaining investor confidence.

“International lenders and investors watch these developments closely. When they see constructive engagement between banks, regulators and government, it sends a signal that the operating environment is becoming more predictable,” Mr Kaguru said.

Engagement between FBC Holdings and Zimra remains ongoing, with the disputed amount still disclosed as a contingent liability.

Although the outcome of the case is yet to be determined, analysts say the broader policy reform already represents a positive step for the banking industry.

More fundamentally, they argue, the episode highlights the importance of clear, consistent fiscal frameworks to ensure banks can continue mobilising capital and financing economic activity across Zimbabwe’s productive sectors.