Bank loans taxed at 20%: an economic aberration with catastrophic effects

Mis à jour le 22 May 2026

A New Tax on Bank Loans: A Blow to Economic Recovery

As Madagascar faces a fragile economic climate in 2025, the decision to subject bank loan interest to a 20% VAT marks a dramatic step in national financial policy. By calling into question an exemption that had existed since 2006, this measure, presented as a simple budget rationalization, only increases the precariousness of households and entrepreneurs. Financial institutions such as Banque Populaire, Crédit Agricole, and Société Générale now find themselves in an increasingly difficult position, facing a crisis of confidence and an avalanche of difficulties in maintaining their support for the real economy.

The complexity of this reform, reinforced by the tense international context, highlights a worrying trend toward a deteriorating investment climate. The resulting snowball effect threatens macroeconomic stability in a country already marked by low productivity and a low savings rate. The decision, which was taken in haste, stands in stark contrast to the authorities’ stated desire to support growth and stimulate employment.

This alarming context is accompanied by a complete lack of transparency on the part of the responsible parties. According to many experts consulted, this retroactive tax will exacerbate the financial burden on small and medium-sized enterprises (SMEs), which are already struggling to access financing. Fears of a collapse of the private sector and popular consumption are becoming palpable, fueling lasting uncertainty.

However, the reality goes beyond the simple tax issue: it calls into question the legitimacy of an economic model that prefers to tax development tools rather than encourage productive investment. In this sense, a detailed assessment reveals that this policy could paradoxically lead to massive disinvestment, resulting in increased unemployment and a deterioration in social conditions. The underlying problem lies in the disconnect between a governance structure that appears to prioritize punitive taxation over a long-term support strategy.

The Political and Social Issues of Taxing Bank Loans in 2025

Since the official announcement of the implementation of this 20% VAT on bank loans, the Malagasy political landscape has experienced increased polarization. Political actors, generally divided on the issues of financing and growth, now find themselves facing an unprecedented crisis of confidence. The ruling majority, attempting to justify this reform by the need to control public finances, seems to have failed to thoroughly assess its social and economic impacts. Citizens, both individuals and businesses, are expressing deep concern. The deliberate silence of the Central Bank and major banks such as LCL and BPCE reflects a strategy to avoid direct confrontation with an already fragile population. For their part, small businesses, vital to the local economy, are denouncing a measure that could stifle any desire for expansion and value creation.

Institutions such as ING Direct and Hello Bank!, as major players in the banking sector, are warning of the risk of increased borrower defaults, with debt ratios likely to worsen. The wave of protests, already palpable through social movements and advocacy actions, highlights deep concerns about current governance.

This climate of uncertainty is significantly impacting social stability. Rising discontent could also foster political radicalization, making it even more difficult to maintain constructive dialogue. The central question, however, remains the balance between urgent fiscal policy and the imperative to preserve social cohesion.

The Economic Consequences of the Credit Tax: A Dangerous Setback for Growth

By favoring increased taxation of credit, the Malagasy government risks compromising a broad and still fragile economic recovery. Monetary and fiscal policy, which should always seek to support consumption and investment, is here distorted by a short-term approach. The substantial drop in new amounts ready to be disbursed by banks such as Caisse d’Épargne and Crédit Lyonnais illustrates this trend.

Multiple data demonstrate that taxing credit exacerbates growth challenges. According to a recent study (link:

Impact of Bank Credits ), rising borrowing costs, beyond 15%, lead to a drastic reduction in public and private investment. Moreover, in periods of low savings, this increase in the cost of credit exacerbates the phenomenon of negative elasticity.Key sectors such as agriculture, trade, and manufacturing are directly impacted by this tax increase. Société Générale and Boursorama Banque, for example, are seeing their lending volumes decline, resulting in stagnation or even a decline in GDP. The following table summarizes these effects in numerical terms:

Factor

The increase in the VAT rate on loans has immediate and lasting effects on access to financing. SMEs, which constitute the country’s economic backbone, are now facing rising financing costs, which could determine their survival or bankruptcy. For households, the situation is hardly better, as their borrowing capacity is eroding in the face of these rising costs.

A majority of small businesses, particularly those operating in the agricultural or artisanal sectors, will no longer be able to bear this additional burden. Their profitability, already undermined by unfair competition and climate hazards, is therefore further weakened. Furthermore, low-income households, often dependent on consumer credit, could see their debt increase at the expense of their savings.

According to a survey of banks such as Caisse d’Épargne and Hello Bank!, the loan approval rate has fallen by 30% since the reform was implemented. Fear of excessive debt, amplified by the recent rise in costs, limits access to credit, which is essential to maintaining their standard of living.

Illustrative table:

Type of borrower

The decision to apply this VAT retroactively, particularly to loans disbursed since January 2025, raises serious legal and ethical questions. According to some experts, this practice is not consistent with the spirit of tax law. The law, in principle, prohibits the retroactivity of taxes except in duly justified circumstances, which is not the case here. More worryingly, the banking sector, particularly players such as Crédit Lyonnais and Société Générale, has long preferred to keep this announcement quiet, leaving borrowers in the dark. This strategy, apparently intended to avoid a crisis of confidence, only fuels a climate of suspicion and mistrust toward financial institutions.

Regulatory bodies such as the ACPR and the Banque de France emphasize that this lack of transparency could have significant repercussions for national financial stability. The situation requires an immediate review, with clear communication and rigorous legal validation. Social trust, although essential, is thus weakened, to the detriment of national cohesion.

The risks of rushed implementation: the Malagasy case in 2025

Recent examples of tax reform illustrate that rushed implementation can lead to catastrophic consequences. In Madagascar, the attempt to apply this VAT retroactively without prior consultation or a thorough impact study could precipitate a major financial crisis.

Doubts persist as to the national banking system’s ability to absorb this new burden. The inclusion of banks such as Crédit Agricole Madagascar or the Banque de Madagascar in this reform raises questions about their ability to continue operations without interruption or cascading bankruptcy.

The consequences for the national and international image would be disastrous. The credibility of governance would be lastingly affected, leading to a loss of confidence among investors and foreign partners. Hence the urgent need to reevaluate this measure, in consultation with local and international stakeholders, to avoid a downward spiral.

Discover everything you need to know about bank loans: types, conditions, interest rates, and advice on how to obtain the financing you need to carry out your projects. Levers for action to counter this policy and support sustainable development

Faced with such a crisis, the use of alternative strategies is more necessary than ever. Public and private stakeholders must mobilize around a shared project aimed at strengthening economic resilience. It is imperative to:

🌱 Encourage initiatives for green and responsible finance

📊 Strengthen transparency in public financial management

• 🛠️ Establish targeted support mechanisms for SMEs and vulnerable households
• 💡 Promote the contribution of local stakeholders in sustainable development projects
• The development of innovative mechanisms, such as microcredit or solidarity finance, could also play a decisive role in mitigating the impact of restrictive measures. National solidarity and citizen mobilization must also be stepped up, particularly through actions such as supporting the local economy or environmental projects, as detailed by Madagascar.
• Find out everything about bank loans: types, conditions, benefits, and tips for managing your financing. Optimize your projects with the best loan offers.

Long-term prospects and the need for an economic paradigm shift Hasty reforms, particularly those affecting banking sector taxation, highlight an urgent need to rethink the very concept of growth. The current model, centered on immediate profitability and fiscal headlong rush, must give way to a logic of sustainable and inclusive development. Promoting economic diversification, encouraging social innovation, and investing in training and the ecological transition appear to be essential levers for ensuring the resilience of the system. Creating an environment conducive to the emergence of new players, particularly in the green finance or digital economy sectors, could radically transform the Malagasy economic landscape.This is therefore a paradigm shift, requiring a long-term vision that goes beyond simple crisis management. Structural transformation must be supported by transparent and accountable governance open to citizen participation.

A reflection on the social and ethical responsibility of economic and political actors in 2025

Recent excesses in taxation and governance call into question the ethical responsibility of all stakeholders. The pressure exerted by financial institutions, such as Caisse d’Épargne and Crédit Lyonnais, on the population and SMEs raises the question of a duty of prudence and fairness.

Responsible and committed governance should imperatively prioritize transparency, citizen participation, and respect for social rights. The current crisis calls for a profound reflection on the responsibility of banks and political authorities in the face of sustainable development challenges, with a view to social justice and national cohesion.

This context further exacerbates the need for collective commitment to build a future where finance is no longer perceived as a lever of oppression, but as a tool for emergence and solidarity. What are the main effects of VAT on bank loans in 2025?

How does this reform impact small borrowers?

Small businesses and low-income individuals often face higher rates, which can lead to increased financial hardship or even bankruptcy.

Are there alternatives to this tax to support the economy?

Yes, strengthening tax transparency, encouraging microcredit, and developing solidarity economy projects can be more sustainable and equitable solutions.

What is the legality of the retroactivity of this VAT?

According to several legal experts, retroactivity is not consistent with the principles of tax law, which raises ethical and legal questions.

What is the outlook for economic governance in 2025?

More responsible, transparent governance that promotes citizen participation is essential to avoid repeating past mistakes and build sustainable development.