DAR ES SALAAM, June 23 -- THE government should exempt licensed banks and financial institutions from thin capitalisation rules, align taxation of nonperforming loans with prudential standards and issue clear guidance on bad-debt treatment as part of measures to improve certainty in the financial services sector.

In its Pre-Budget Newsletter: Financial Services Sector, PwC said several long-standing tax challenges continue to affect banks and microfinance institutions, creating disputes, increasing compliance costs and potentially limiting the sectors ability to support economic growth through lending.

The advisory firm said tax rules need to better reflect the economic substance of banking operations, where deposits and other funding s...