Finance Minister Mthuli Ncube delivered some sombre news at the Monetary Policy Statement. From charging 5c per transfer transaction the government will (with immediate effect) charge 2c for every dollar per transaction. In layman terms, this means you’ll now be charged 2% for every transfer transaction you make.
It never rains
Where you were paying 5c to transfer $1000 you’ll now be required to pay $20. Quite ridiculous. For a country that is aiming to become the first cashless economy in the SADC region, the government sure is placing most of the burdens of being cashless on the citizens. In this economy, the moment cash is available people will resort back to cash.
At a time where banks are already making loads from POS charges, this new government tax adds on to these exorbitant pricing schemes. The new law is beneficial but only when you are dealing with transfer transactions below $3. From $3 dollars going up, you’ll be charged more which means the benefits of this will be felt on rare occasions when you need to send two bucks. Sigh.
Why tax people so aggressively?
Update: The new taxes are being applied because the national debt has ballooned. At the initial time of writing, there was no context as to why this change was made but after having read the full statement it’s clear why the changes were made. Due to the national debt which has frighteningly risen over the past 6 years has to be addressed. Well, that’s what the Finance Minister said in his statement:
At the centre of the above challenges, is the unsustainable high budget deficit. This challenge has had destabilising implications not only to the financial sector but to the rest of the economy.
The financing of the deficit was mainly through domestic borrowing with the use of instruments such as Treasury bills, overdraft with the Central Bank, cash advances from Central Bank, arrears and loans from the private sector.
Such financing mechanisms is crowding out the private sector, hence constraining production. This also increased money supply in the economy translating into exchange rate misalignment and inflationary pressures now at 4.9%, as at August 2018
Similarly, the high deficit has ignited expansion of domestic debt from US$275.8 million in 2012 to current levels of US$9.5 billion against US$7.4 billion external debt. This brings total public debt to US$16.9 billion.
Treasury introduced the Intermediated Money Transfer Tax with effect from 1 January 2003 through the Finance Act 15 of 2002. The tax was set at 5 cents per transaction, which was a specific tax. However due to the increase in informalisation of the economy and huge increase in electronic and mobile phone based financial transactions and RTGS transactions there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and RTGS system.
The information we have so far is that in 2018 1.7 billion transactions went through as compared to 50 million four years ago.
I hereby review the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective 1 October 2018.
I am therefore directing financial institutions, banks and ZIMRA, working together with telecommunication companies to extend the collection to all electronic financial transactions.
The fact that the taxing is said to be meant to address the debt issues may mean that this is not a forever thing, but the Minister didn’t say that so that’s now speculation on my part…
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