Categories: Economy

2% tax still lives even during a global pandemic, if only Zimbabwe were Kenya

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The Finance Ministry, on Thursday last week published the mid-year budget review, in this they outlined the “progress” the country has made over the past six months. The more interesting part of that were the proposals set forward by the Minister. Some of these measures were aimed at mitigating the financial woes Zimbabweans are currently enduring due to COVID-19.

It is fair to say that they don’t go far enough. The one tax that I thought would have been waived or at least reduced is the IMTT (Intermediary Money Transfer Tax). That didn’t happen… It was (as many would have expected) moved to include forex transactions.

The 2% tax…

In a Grant Thornton analysis of the 2% tax back in 2018, the following conclusions were drawn:

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  • The tax would increase cash transactions. The government had been at the time trying to move people towards going cashless. The 2% Tax meant that people were going to transact more in physical currency to avoid it. This as we are all well aware led to an even deepening shortage of cash
  • People would move more to the informal sector in order to transact in cash.
  • Cash deposits to banks would decrease
  • Double taxing, the taxpayer getting taxed on paying tax. The tax may have been better placed on revenue rather than on transactions. The taxpayer (Manufacturer, Trader, Consumer etc) has to pay VAT for a product and then is taxed 2% on top of that, ignoring rules on double taxation.
  • Section 16(1)(d) of the Income Tax Act prohibits claiming tax as an expense for income tax purposes.  However, the intermediated financial transactions tax is in fact a cost/expense to the trader rather than a tax.  The question was, would taxpayers be allowed to claim it as a deduction? 
  • The 2% Tax would be applied to basic commodities, goods, and services which were tax exempt
  • It would increases the cost of production. Prices would obviously increase and this would be shipped on to the consumer.

This tax was clearly detrimental then and is an immeasurable burden now. This isn’t something that the taxpayer should continue to shoulder especially at a time like this where money and resources are dwindling.

Copy thy neighbor

If only the Zimbabwe finance ministry had taken some inspiration from the Kenyan government’s response to COVID 19:

Fiscal policy

100% tax relief for low income earners (namely, persons earning gross monthly income of up to KES 24,000 [USD226])

A payment of additional income for a person earning a monthly income of KES 24,000

Decrease of the top Pay-As-You-Earn (PAYE) rate from 30% to 25%

Decrease of the value-added tax rate from 16% to 14% with effect from 1 April 2020

Decrease of the resident corporate income tax from 30% to 25%.

Business Income Tax

The Government has proposed a reduction of the top “pay as you earn” (PAYE) rate from 30% to 25%.

Monetary policy

On 17 March, a central bank order for banks to waive bank fees for individuals who move money between their bank account and mobile wallet came into effect. It has also increased the upper limit for mobile money transfers by SMEs. Both are in a bid to limit contact with physical notes. On 18 March authorities reached a deal with commercial banks to restructure non-performing loans caused by Covid-19 lay-offs etc.

On 23 March, the MPC cut its policy rate from 8.25% to 7.25% and reduced the cash reserve ratio from 5.25 to 4.25. The central bank states that it “will ensure that the interbank market and liquidity management across the sector continue to function smoothly”.

Bank debt restructuring also apply to businesses facing financial instability due to Covid-19. This is not necessarily directly aimed at keeping businesses up and running, but it may contribute to assisting them. SMEs can now make larger mobile money transfers

KPMG

This sounds more like the course that should have been taken. To limit the strain that the coronavirus has inflicted. This isn’t to compare Zimbabwe to Kenya, our situation differs in a number of areas. What I am driving at here is to say that the Kenyan Government realised that the pandemic was going to hit the people really hard. Their citizens and businesses needed to be protected and these measures reflect that.

In Zimbabwe, the hope was that there would be far ranging measures to cover the people. The government would then have to devise a way to make up for the short fall in revenue. Maybe cutting funding to some non-essential programs and initiatives.

I am after all, an arm chair economist. I am sure there are among you those who have experience in the field, or a keener insight into this matter, your views and comments on this would be greatly appreciated.


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  • If only Zimbabwe were a Democratic run, open for Investment, corrupt free ( well you will always have some but not at our current rate )

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  • Kkkk lie income earners 225usd... That's basically the majority

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Published by
Valentine Muhamba

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