GOVERNMENT is ruing its decision to hike the intermediated money transfer tax (IMTT) rate on US dollar transactions to 2% for transactions valued up to US$100, saying the move may backfire by hindering financial inclusion and dissuade Zimbabweans from transacting electronically.
According to regulations, IMTT is now levied at 2% across transactions in the Zimbabwe Gold (ZiG), US dollars and Gold-backed Digital Tokens.
Before the latest policy amendment, the 2% tax was only charged on local currency transactions, while the US dollar transaction tax was pegged at 1%.
But speaking in Parliament on Wednesday this week, Finance, Economic Development and Investment Promotion deputy minister Kudakwashe Mnangagwa said the decision was likely to discourage people from transacting electronically.
Mnangagwa said the IMTT hike was a social and economic experiment to see how people and businesses would react upon which it would be reviewed.
“The Finance minister, ... issued an SI (statutory instrument) a few days ago, to increase the IMTT on US dollar transactions. Prior to that, the IMTT on US dollar electronic transactions was 1%. It has now been equated to the ZiG IMTT which puts the two currencies at par,” he said.
“Increasing the transaction cost does, indeed, dissuade the general populace from transacting electronically, but this is something we have had to deeply introspect upon trying to balance the need to collect revenue versus the effort of allowing everybody to be financially included.” Mnangagwa said.
Citizens Coalition for Change MP (Mbizvo) Corban Madzivanyika had questioned the government’s wisdom to increase the IMTT at a time authorities are encouraging the public to use the banking sector.
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“Increasing IMTT of USD to 2% actually jeopardises more because it does not create demand for ZiG. If you check, for example, 2% of ZiG100 000, is equal to 2 000. It is a big amount. We thought that the minister would take it down. Can the minister consider reducing IMTT on ZiG transactions from the 2% to probably 0,5% to encourage demand for the ZiG?” Madzivanyika said.
In response, Mnangagwa said: “At this juncture Mr Speaker, we are still leaning towards the revenue collection necessity and we will continue to monitor as we go along, whether this skew hinders people from entering the realm of financial inclusion and electronic transactions upon which we can review.”
The IMTT collects huge revenue for government. Finance minister Mthuli Ncube told Parliament in 2022 that the government had no immediate plans to scrap the tax which was introduced in 2018 to capture the informal sector that ordinarily does not pay tax despite handling huge local transactions.
Captains of industry and commerce, however, feel IMTT adds a significant cost to numerous other heavy tax requirements they have to meet.
