THE Reserve Bank of Zimbabwe (RBZ) says the Treasury should consider removing the Intermediated Money Transfer Tax (IMTT) on digital transactions to bring into the banking system the over US$2 billion circulating in the informal sector.
The informal sector operates on a cash basis which is not banked into the formal banking channels.
Mangudya’s call to remove the IMTT on transactions that are intermediated through plastic bank cards and other digital platforms comes barely a week after he advised banks to reduce banking fees to encourage informal players to bank their monies.
“In order to complement efforts to formalise the economy and to give more impetus to the use of non-cash-based means of payment in the economy, it is recommended that Government considers removing Intermediated Money Transfer Tax on transactions that are intermediated through plastic bank cards and other digital platforms,” Mangudya said, in a statement on Tuesday following a Monetary Policy Committee meeting held the previous day.
Experts say the high banking fees, low confidence in ability to withdraw their money timeously, and the 2% and 1% IMTT on local and foreign currency transactions, respectively, have discouraged the informal sector from banking their monies.
Mangudya said banks must scale up financial inclusion plans through the opening of more no-frills (low-cost) accounts.
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“This measure will promote more usage of banking services and financial products, including increased use of bank cards, digital financial services and other cash-lite means of payments in the economy,” he said.
A “no frills account” is defined as a type of bank account that requires an individual to maintain a negligible or no minimum balance along with following some simple know-your-customer norms.
During the first half of the year, an average of ZWL$461,87 billion was being transacted daily through the national payment systems with point-of-sale transactions, where debit cards are used, making up between 7% and 8% of those transactions.
The removal of the IMTT would cost Treasury about ZWL$1,6 billion daily. In the first half of the year, this tax head brought in revenue of about ZWL$288 billion.
The push to tap into the informal sector comes as the central bank data showed that US$1,6 billion was in nostro accounts as of the end of last month.
To increase RBZ’s foreign currency generation, Mangudya reviewed the export retention threshold to 75% across the board. Tobacco and cotton farmers retained 85% of their export proceeds.
“With effect from 1 November 2023, foreign currency retentions on exports shall be standardised at the level of 75% across all sectors of the economy and all special dispensations granted to some sectors of the economy shall be removed,” the RBZ boss said.
“The net effect of this measure is to increase foreign exchange resources available to the bank and Government to meet foreign exchange requirements for the settlement of national and international obligations.”
Mangudya also recommended the removal of the 10% margin, above the official forex rate, that businesses are allowed to put when selling goods or services.
“In order to support the continuous fine-tuning and further liberalisation of the foreign exchange market, with a view to guaranteeing and safeguarding exchange rate stability, it is recommended that the limit of 10% trading margin above the interbank rate be removed,” he said.
The effect would be a reduction in prices for goods and services priced in foreign currency.