Zimbabwe Imposes New Forex Tax to Support ZiG Currency

Government Acts to Curb Forex Outflow with $0.02 Tax

by Ikeoluwa Ogungbangbe

A new tax policy aimed at reducing the outflow of foreign cash and supporting the recently introduced Zimbabwe Gold (ZiG) currency has been unveiled by Zimbabwe’s Finance Minister, Mthuli Ncube. Details of this proposal were released in Statutory Instrument (SI) 80 of 2024 in the Extraordinary Government Gazette on May 3, 2024. It levies a tax of $0.02 on each dollar that leaves the nation.

This latest fiscal policy is a reaction to persistent worries over foreign exchange scarcity within Zimbabwe’s official banking institutions, even though the central bank believes that the country’s unbanked population is still estimated to be approximately US$2.5 billion. The Finance Act’s larger revisions, which explicitly modify Sections 22B and 22G, which regulate automated financial transactions and the intermediated money, include the additional tax.

Every outbound foreign payment will now be subject to a transactional tax rate of $0.02 under the recently amended regulations. This will have an effect on a variety of economic activities, including local industries importing raw materials and foreign companies operating in Zimbabwe that remit earnings to their home countries. Online transactions with businesses that are not established in Zimbabwe as well as outbound remittances are subject to the tax.

These companies’ operating expenses are expected to rise sharply as a result of this levy, thereby aggravating their already high cost structures and increasing inflationary pressures on the Zimbabwean economy. Additionally, the move would make local companies less competitive globally since it would discourage foreign collaborations and investments due to the additional expenses.

Ncube added new fees to withdrawals and transactions performed in local ZiG currency in addition to the foreign transaction tax. There will now be a US$0.05 tax for each withdrawal over the local currency equivalent of US$100. In a similar vein, each ZiG transaction will result in an IMTT calculation at a rate of 0.02.

Notably, a flat intermediated money transfer tax of the equivalent in ZiG of US$10,150 will be levied for transactions on which the tax is applicable and that are equal to or exceed US$500,000 (at the current interbank rate). This is targeted towards high-value transactions, which are more likely to have an effect on the cross-border transfer of substantial amounts of money.

The government’s urgent attempts to stabilize the ZiG currency and keep more foreign exchange inside the nation’s borders are evident in these budgetary changes. The implementation of these controls is viewed as a vital first step in guaranteeing the foreign exchange availability for goods and services that are necessary for Zimbabwe’s economy to run smoothly.

However, corporate executives and analysts are concerned about how these levies may affect Zimbabwe’s economy in the long run, given their recent introduction. Although these policies are meant to safeguard and stabilize the local currency, they may also discourage foreign investment and put pressure on companies that depend significantly on imports and cross-border trade.

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