Online Reporter
Business Reporter
TREASURY’S decision to raise the Value Added Tax (VAT) rate by 0,5 percentage points will deliver an immediate boost to fiscal inflows, although this may slightly increase business operating costs.
While economists feel the added cost to business may impact competitiveness and, to some extent, consumer spending patterns, the VAT adjustment will offset the negative impact of the reduced intermediated money transfer tax (IMTT) cost on the fiscus.
The IMTT is a tax levied on electronic financial transactions in Zimbabwe. It was introduced in 2018 and is a significant source of Government revenue and is collected by the Zimbabwe Revenue Authority (ZIMRA).
Zimbabwe had to devise innovative ways to support domestic resource mobilisation to finance competing public expenditure needs, as it was blocked from accessing concessionary funding from global lenders due to long-standing loan arrears and Western sanctions.
Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube, in his 2026 national budget proposals delivered on November 27, 2025, reduced the IMTT rate by 0,5 percentage points to 1,5 percent to reduce its negative impact on business operating costs.
The marginal VAT adjustment to 15,5 percent from January 2026 will thus plug the void created by the IMTT reduction on fiscal revenue inflows, helping maintain balance in the Treasury’s already stretched funding kitty.
Associate director for tax advisory & consulting at Axcentium, Harriet Thompson, in her presentation at the 2026 post-budget breakfast meeting this morning, said the VAT adjustment would strengthen the Treasury’s revenue inflows as the tax is collected upfront.
Ms Thompson noted that VAT provides a predictable and steady stream of funds to the fiscus to support public expenditure. VAT remains one of Zimbabwe’s top contributors to tax revenue, and the authorities believe adjusting the VAT is necessary to shore up fiscal space amid rising expenditure demands.However, this comes at a time when businesses are already grappling with higher production and import costs, and may view the VAT hike as adding a layer of pressure on business costs.
Companies now face a difficult decision of either absorbing the additional cost or passing it on to consumers.
Zimbabwe’s new VAT threshold, however, remains with the regional benchmarks, given that South Africa’s VAT stands at 15 percent, while Botswana charges 14 percent.
“Increase in VAT Rate is going to immediately boost revenue to the fiscus as VAT is collected upfront,” Ms Hariet said..
“However, businesses have a choice to absorb the cost or pass it on to consumers.
While the VAT increase provides short-term fiscal relief, authorities will need to balance revenue mobilisation with competitiveness and consumer welfare to avoid widening the gap between the formal and informal economy.
