The Zimbabwean finance minister introduced a 2% Intermediate Money Transfer Tax (IMTT) a couple of years ago to stun the nation. The 2% tax is charged on all money transfers – physical, electronic or otherwise. There is no distinction between individuals and businesses, all are equal in the eyes of the finance ministry and so everyone pays the 2%.
I know we now have short memories but we all remember that this tax was universally hated upon introduction. It is still hated but like with all other such scenarios in Zimbabwe, we all have resigned to the fact that nothing we say or do will lead to its abolishment. It’s a coping mechanism we developed as a nation to deal with infuriating policies.
Why propose such a tax?
Zimbabwe has a large informal sector and an incapacitated tax authority.
The large informal sector is mostly living from hand to mouth and so is disinclined to adhere to presumptive tax mandates. You see, the govt expects informal traders to pay a presumed tax that is not really based on their business activity. One of the reasons being that Zimra (Zimbabwe Revenue Authority) does not expect every single barber to be able to fill out income tax returns for example.
So, an honour system was put in place – the presumptive tax. Informal traders pay the fixed levy and the govt leaves them be. For the barber we mentioned, the presumptive tax for 2022 looks like this:
Operators of hairdressing salons, four thousand and sixty-five dollars per chair per month
No hair stylist will be in a hurry to pay this ZWL$4065 per chair per month. Most rentals per chair per month do not even go that high. Rentals are around US$20 per month and if operators for hairdressing salons add the ZWL$4065 tax on top of that, that will more than double the burden for our barber.
Zimra does not have the capacity to chase down each of them and so most informal traders just don’t pay the presumptive tax. Indeed most don’t even know it exists.
Hence the introduction of the 2% IMTT. If the informal sector won’t pay presumptive tax, they will have to pay some fee every time they pay for stuff. That way, we can be certain every single citizen is paying their fair share to the country’s coffers.
Double taxation? Why not then abolish presumptive tax?
The issue of double taxation was raised by all observers. The 2% tax was added but nothing else gave way for its arrival. We just saw that our barber, who is now paying 2% tax on all his purchases, including personal expenses like food, stil has to pay $4065 per chair.
That is not even the biggest issue. See, Zimra could argue that the 2% couldn’t possibly be enough. After all, registered companies pay 24% before AIDS levy etc. So the argument could be that the 2% tax complements the $4065.
We can grant that. However, what about the registered company already paying Value Added Tax (14.5%) and the 24%+ corporate taxes? These companies also have to pay the 2% on all their purchases. If the 2% tax was supposed to target informal traders not paying their fair share, why are tax compliant companies also paying it?
This becomes double taxation, or effectively just a tax increase.
Effect on businesses and the economy
The taxman increased his revenues obviously. For the nine months to September 2021, the 2% tax contributed 9.1% to total tax revenues. As you can imagine the govt is thrilled and Mthuli Ncube regularly praises the tax for our budget surpluses.
Formal businesses have seen their cost of doing business increase. For they are paying the 2% tax even for internal transactions. Also, unlike other taxes, the 2% is levied on expenses and not revenue. So, it adds to costs and so should be deducted from the final corporate taxes to be paid.
Economists have argued that the 2% tax has a compounding effect on the supply chain. The primary producer adds the 2% to their price and every middleman also calculates the 2% after adding their own markup. In the end, the actual amount paid as IMTT is much higher than you would first imagine.
All this means the final price that we, the consumers, then pay has factored in the IMTT. Hence part of the reason we have seen price increases.
Calls for adjustments to the IMTT
Everyone, from economists and business leaders to mshikashika drivers have called for adjustments to the IMTT at the very least. Even some politicians have half-heartedly called for changes.
There are loud calls for the 2% tax to be tax deductible for formal businesses.
A few weeks ago, Mthuli Ncube said his is a listening govt and so they will consider these industry recommendations. However, he said we should not expect any changes in the short or medium term.
It is still too early to make adjustments on the IMTT, we still have a lot that needs to be done at the moment. But we will look into it because we are a listening government.Finance Minister Mthuli Ncube
Our parliamentarians are okay with all this. Just like they half-heartedly fought against the US$50 cellphone levy, they won’t protest any further.
How Ghana’s parliamentarians responded to similar tax
There is a proposal to introduce a 1.75% tax on electronic transactions in Ghana. Much like Zimbabwe’s 2% tax.
As you can imagine, the Ghanaians are not thrilled about this. So, when the proposal was put up for debate and voting in parliament, chaos broke out. Two equally passionate camps disagreed on the wisdom in such a tax. Moves were made to block some members from voting and members of parliament ended up throwing punches and wrestling each other.
Those against the tax argue that it will reduce economic activity in addition to disproportionately affecting lower-income people. Sounds like some of the arguments we all made in Zimbabwe. Maybe some of the MPs have been studying Zimbabwe and its hyperinflation.
Those for the proposal sound exactly like Mthuli Ncube. They argue it will increase tax revenue which can be used for various projects benefiting the nation.
If only our MPs were as passionate
We have seen fights in our own parliament and we sure would appreciate a similar brawl when it comes to this aggressive tax regime. The Zim parliament made the lightest of protests to the US$50 cellphone levy just like they hardly whimpered when the IMTT was introduced.
We need more from these people who are supposed to be representatives for the people. For the people they represent don’t want these new taxes.
I think the problem is that MPs tend to vote along party lines the world over. An MP might know that his constituents are against a certain course of action but will vote like his party requires him to. Even if that goes against the wishes of the people he represents.
So, when one party has the majority of seats, parliament becomes the ruling party’s extension. No real opposition can exist hence no brawls.