In a surprising admission, the Zimbabwean government has expressed regret over its recent decision to increase the Intermediated Money Transfer Tax (IMTT) on US dollar transactions to 2%. This move, aimed initially at harmonizing the tax rate across different currencies, including the new digital tokens and the local ZiG, is now seen as a potential barrier to financial inclusion and digital economic engagement.
During a parliamentary session this week, Deputy Minister of Finance, Economic Development and Investment Promotion, Kudakwashe Mnangagwa, acknowledged the government’s concerns that the increased tax rate might discourage Zimbabweans from engaging in electronic transactions. The decision, he noted, was part of a broader “social and economic experiment” to gauge the reaction from the public and the business community, suggesting that the policy could be revisited based on the impact observed.
Previously, US dollar transactions were taxed at a rate of 1%, while transactions in local currency attracted a 2% tax. The recent statutory instrument issued by the Finance Minister sought to equalize the IMTT across all transactions, regardless of currency, to streamline tax administration and potentially increase revenue. However, this policy shift appears to have unintended consequences for the government’s broader goals of promoting electronic transactions and broader financial inclusiveness.
The hike in IMTT has sparked a backlash not only among the general populace but also within the legislative framework. Citizens Coalition for Change MP Corban Madzivanyika questioned the wisdom of increasing the tax rate at a time when the government is pushing for greater use of the banking sector and electronic payments to enhance financial inclusion.
Madzivanyika also highlighted the disproportionate impact of the tax on transactions involving large sums, which could further dissuade the adoption of the government-backed ZiG currency. He proposed a reduction in the IMTT rate for ZiG transactions to make it more appealing and support the currency’s uptake.
In response to these concerns, Deputy Minister Mnangagwa reiterated the government’s current priority on revenue collection but indicated openness to adjusting the policy. He emphasized the government’s intent to closely monitor the situation and potentially review the tax rate if it proves to be a significant barrier to financial inclusion or electronic transaction adoption.
The business community has also voiced its apprehension regarding the IMTT increase. Industry leaders argue that the tax adds a significant burden on top of an already heavy tax load, impacting operational costs and economic viability. These concerns are particularly pressing in Zimbabwe’s challenging economic environment, where businesses are navigating multiple financial pressures.
The Zimbabwean government’s decision to increase the IMTT on US dollar transactions reflects a delicate balancing act between revenue generation and economic stimulation. While the move aims to streamline tax rates across different currencies and capture more revenue from electronic transactions, it also risks hindering the very financial inclusivity it seeks to promote. The government’s acknowledgment of potential backfire and openness to revisiting the tax policy underscores the complexities involved in fiscal management and economic strategy in a digitally evolving marketplace. As Zimbabwe continues to navigate these challenges, the outcomes of this tax experiment will likely influence future policies in significant ways, impacting not just governmental revenue but also the economic behaviors of businesses and individuals across the nation.
Source: Newsday
