Wangu wangu wangu! Might be an overplayed meme at this point, but it perfectly captions the response I and many others had to the new economic measures presented by the President late last week. Chief among those measures was an incentive for the use of local currency by slapping a 4% tax on forex transfers with the intermediary money transfer tax (IMTT) for local currency remaining at 2%.
Government is, with immediate effect, putting in place a differential taxation system for the Intermediary Money Transfer Tax (IMTT) as follows:
(i) 2% would continue to apply to local currency transfers; and
(ii) All domestic foreign currency transfers to attract an Intermediary Money Transfer Tax (IMTT) of 4%President’s speech (via The Sunday Mail)
The first question this raised in my mind was…
Why is the govt prioritising reported figures over the needs of the average Zimbabwean?
I am definitely preaching to the choir and forgive me for doing so, but it appears that the macro economic outlook seems to be taking precedent over micro ones. By that I mean, there is a priority for those matters that affect the big figures we see reported by the government than the effects policies have on the average household.
We are all well aware that the only way to retain any sort of value these days is if you hold USD in cash. This allows people to hedge their bets against the parallel market rate and make gains so that they can improve their purchasing power. This unfortunate practice has been a consequence of living in Zimbabwe because many are losing money hand over fist if they keep local currency for any stretch of time.
The ZWL$ has become a currency people buy things with to gain an advantage over business owners who aren’t up to date with the ever-changing parallel market rate.
What I thought would be the “route one” way of doing things was to introduce incentives to entice the average citizen to bank their USD. Zimbabwe is a largely informal economy and even those with formal employment have side hustles where they earn cash in order to meet their rolling commitments.
Why then would the government openly disincentivise the electronic transfer and use of USD in favour of a currency that has no certain rate on the street? Is it not incumbent on the Ministry of Finance to draft measures that will make it easier for the average Zimbabwean to renew trust in the financial system instead of making mattress banking a risk worth taking?
I wish I had the answers to these questions, however, it looks like the financial authorities are hell-bent on discouraging the official use of a currency that is unanimously the one that everyone wants to deal with. I mean even some government institutions, like the passport office, are only taking payment in the United States Dollar.
Why there is no shared consensus between the average Zimbabwean and the government that, until there is certainty and backing for the local currency, the USD is a necessary evil, is beyond me…
The withdrawal levy
On top of the 4% tax on forex transfers, the government also announced a withdrawal levy for USD…
There is a preference to withdraw foreign currency for transaction purposes, thereby undermining IMTT collections, given that cash withdrawals are not liable to IMTT.
In order to discourage thie withdrawal of cash which is traded on the parallel market, the cash withdrawal levy for amounts above US$1,000 will with immediate effect, be reviewed from 5 cents per transaction to 2%
Again… Who is going to find it sensible to deposit their hard-earned USD to face a 4% tax if they play to use it electronically plus get slapped with a 2% tax for withdrawals above US$1,000?