Online Reporter
Tapiwanashe Mangwiro
FBC Holdings is locked in a US$10 million ‘unpaid’ tax dispute with the Zimbabwe Revenue Authority, with the financial services group confident it will prevail in denying the alleged liability before the courts of law.
The dispute centres on the tax treatment of interest expenses under Zimbabwe’s Income Tax Act and dates back to assessments covering the period from 2019 to 2024.
According to the group’s 2025 financial statements, FBC said it is engaged in ongoing discussions with the tax authorities regarding the treatment of certain past transactions.
The bank maintains that its interpretation of the law is sound and therefore has not made a provision for the potential liability in its accounts.
However, if Zimra’s interpretation prevails, the group could face additional taxes of about US$9,4 million and ZiG49,4 million, excluding penalties and interest.
Including the additional charges, provisional assessments issued by the tax authority may rise to US$18,2 million and ZiG72 million.
Speaking during an analyst briefing last week, FBC Holdings chief executive Trynos Kufazvinei said the group had carefully evaluated the matter 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 noted that legal and tax advisers had reviewed the bank’s interpretation of the law, particularly the definition of gross income and the provisions of Section 16(1)(o) of the Income Tax Act, which the tax authority relied on in its 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,” Mr Kufazvinei said.
“That is the reason why our auditors, our lawyers and our board all agreed that this should be treated as a contingent liability.”
He acknowledged that the outcome could still go either way if the matter were to proceed through the courts.
“When you go to court, the outcome is never 100 percent guaranteed,” Mr Kufazvinei said. “But where we believed something was clearly a liability, we provided for it in the financial statements.”
Beyond the accounting implications, Mr Kufazvinei said the dispute had briefly threatened the bank’s ability to secure new foreign credit lines used to support lending in the local economy.
He revealed that the group had been preparing to suspend roughly US$80 million in credit facilities after the tax assessments raised uncertainty around the deductibility of interest expenses.
“We were about to stop with about US$80 million or so in credit lines,” Mr Kufazvinei said.
“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 key funding source for Zimbabwean banks, allowing them to extend loans to businesses in key sectors such as agriculture, manufacturing and mining.
The issue was eventually escalated by the Bankers Association of Zimbabwe to the Ministry of Finance, Economic Development and Investment Promotion, culminating in a policy change announced in the 2026 national budget.
Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube acknowledged that existing taxation rules presented 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,” Minister Ncube said in his budget speech. “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.”
He subsequently proposed allowing interest expenses on deposits to be treated as tax-deductible costs, subject to safeguards against abuse, including transfer pricing and anti-base erosion measures.
The change takes effect from January 1, 2026.
According to banker Mr Raymond Madziva, the dispute highlighted the importance of regulatory clarity in maintaining confidence within the financial sector.
He noted that banks rely heavily on predictable tax treatment when structuring funding arrangements and raising 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 said the Government’s decision to correct the legislative framework should reassure lenders and investors.
“The fact that the Treasury has acknowledged the mismatch and moved to correct it is positive,” he said.
“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 the correction would ultimately strengthen banks’ ability 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 also underscored how seemingly technical tax issues can have significant macroeconomic consequences.
“From the outside, it might look like a dispute over interpretation of tax law, but the ripple effects can be quite substantial,” Mr Kaguru said.
“If banks scale back foreign borrowing because of tax uncertainty, the immediate impact is reduced liquidity in the financial system.”
That, in turn, could constrain lending to companies already grappling with limited access to capital.
Mr Kaguru said the policy correction signalled an effort by authorities to maintain Zimbabwe’s financial sector stability.
“Allowing interest expenses on deposits to be deductible simply aligns the tax treatment with the economic reality of banking,” he said.
“It ensures that taxable profits reflect the true cost of doing business.”
He added that resolving such issues was essential for maintaining investor confidence in the sector.
“International lenders and investors watch these developments closely,” Mr Kaguru said.
“When they see constructive engagement between banks, regulators and government, it sends a signal that the operating environment is becoming more predictable.”
Discussions between FBC Holdings and ZIMRA remain ongoing, with the potential liability still recorded as a contingent exposure.
While the outcome is yet to be determined, analysts say the broader policy shift already marks a positive step for the banking sector.
More importantly, they argue, the episode has reinforced the need for clear and consistent fiscal frameworks to ensure banks can continue mobilising capital and financing economic activity across Zimbabwe’s productive sectors.
