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Bulawayo Bureau
There are no immediate plans to amend or scrap the two percent intermediated money transfer tax (IMTT), popularly known as the two cents tax, levied on electronic transactions, Finance and Economic Development Minister Mthuli Ncube told Parliament.
The tax is a small tax that affects a majority of the population, those using mobile money platforms plus those using online banking, although smaller transactions are exempt.
It is exceptionally cheap to collect, being collected automatically by the 16 banks and three mobile platforms whose software does the deductions without further human input.
So every cent collected ends up in the Government account without any deductions for collection or enforcement costs.
Legislators, business leaders and local authorities have been lobbying for the removal and exemption in paying the tax, which Treasury says has become important in raising funds for national development.
Speaking in Parliament recently, the Finance Minister said the IMTT tax has over the past years generated substantial resources that have enabled the Government to support infrastructure projects including responding to shocks such as Covid-19 and climate shocks that the economy has experienced.
He was responding to legislators in the National Assembly who suggested the tax be scrapped.
Prof Ncube said the proposal, if acceded to, will have a major impact on revenue erosion and so mean the Government would have to cut back on what it is doing and limit spending on what people are now receiving.
One request was from local authorities, yet these authorities receive more back in the form of devolution payments, which would be severely cut without the transaction tax.
“There is a request that there should be exemption of local authorities from paying the IMTT tax. The Parliamentary Committee on Local Government, Public Works and National Housing recommended that local authorities should be exempted from paying the IMTT tax,” he said.
“The proposal to exempt local authorities will erode our revenue base. But besides, these local authorities at that level are also benefiting from the devolution budgets to deal with infrastructure developments at that local level. “We feel that it will erode the revenue base but we will examine it going forward and try to see whether we can proceed with this kind of proposal but for now we feel there would be major impact on revenue erosion.”
The Minister noted that transactions within Zimbabwe in foreign currency had seen the tax there cut from four percent to the same two percent that transaction in local currency attract.
The original double level of tax was to push the Government policy of seeking to promote the use of local currency in domestic transactions while allowing the use of foreign currency in the meantime to enhance stability.
Attempts to avoid the tax are largely stymied by the decision by the monetary authorities to limit the amount of cash in circulation, and keep the largest note as just small change, and encourage people to use electronic transfers instead.
According to the 2023 national budget statement between January and September this year, slightly over $100 million had been raised through the tax.
The IMTT was introduced to capture the informal sector that ordinarily did not pay any taxes despite making up a huge chunk of local transactions, now accounting for nearly half the contribution from business users.
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