The Monetary Policy Committee (MPC) of the Reserve Bank of Zimbabwe (RBZ) recommended that the government removes IMTT on transactions that are intermediated through plastic bank cards and other digital platforms. The recommendation was part of resolutions of the MPC meeting held on the 23rd of October 2023. Prior to the MPCs meeting, another organ of the country, the Confederation of Zimbabwe Industries (CZI) amplified its call for the government to remove the IMTT. The heightened calls for scrapping of the IMTT are neither new nor few in number. Several key players in industry have called for the scrapping of the IMTT. The IMTT became a significant transaction in 2018 when the government made it a percentage of value of transaction as opposed to being computed on a number of transactions made. This was through Statutory Instrument 205 of 2018 which fixed the rate of IMTT of 2 percent on all value of electronic transactions within Zimbabwe. The IMTT was solely instituted to increase tax revenue and the tax base. Increasing revenue is achieved by collecting revenue from the already existing taxpayer and increasing the tax base is achieved by taxing the informal sector. This means that every electronic payment (with exceptions) will attract the IMTT, therefore, increasing the cost of transacting digitally. Withal, as taxpayers we have been paying the IMTT for close to six years now, with the government receiving the IMTT for a similar period. Therefore, the questions we want answered are, why the sudden pressure from our big institutes and professional bodies, what are the current impacts of the IMTT on taxpayers and the Government of Zimbabwe, and what will a post IMTT Zimbabwe look like?
The calls for scrapping the IMTT begun around 2018 and have spanned to present day. Additionally, the calls for scrapping the IMTT have been made by professional bodies, stand alone firms and some of Zimbabwe’s most prestigious institutions such as the RBZ. However, the calls have recently intensified due to the economy cooling. The upstream effects include a compounded effect on players in the entire value chain from the producer to the wholesaler. The upstream effects are seen by a negative impact on profits, sales, and revenues. The downstream pressures on retailers and consumers further amplify the impact of the IMTT. Therefore, with the economy cooling down and business activities slowing down, firms and institutes alike have felt the pinch of the IMTT. This has led to calls for scrapping of the IMTT, for example Bankers Association of Zimbabwe have highlighted the fact that the tax acts as a disincentive for banking. Additionally, players like Zimbabwe Investment and Development Agency have positively received the lowering of the IMTT to 1%, however, they also called for the scrapping of the IMTT.
The impact on the taxpayers is seen by an increase in cash transaction, decrease in deposits as most taxpayers would rather prefer to keep their hard-earned currency at their premises, loss of competitive advantage, double taxation, taxation of social basics such as school fees, and a general increase in the cost of doing business, While the impacts on the consumer are negative, the government has reported positive impact of the IMTT as it has contributed to the fiscus. The positive contribution to the fiscus has leveraged the government to execute more projects that are in line with the national development strategy.
Noting the impacts on the taxpayers and the government, removing the IMTT would affect everyday transactions in Zimbabwe. One such an effect would be on electronic payment methods, such as mobile money transfers and digital banking, which may become more attractive and widely adopted due to the reduced costs associated with them. People may also be more inclined to use these methods for everyday expenses like groceries, transportation, and utility payments, leading to a shift from cash-based transactions.
Small and Medium Enterprises (SMEs) are likely to benefit from the removal of IMTT. SMEs often rely on digital payment methods for their operations, and the elimination of this tax would reduce their transaction costs. This could lead to improved cash flow for these businesses, making it easier for them to conduct transactions, pay suppliers, and manage their finances more efficiently. Large corporations may also benefit from the removal of IMTT, particularly when it comes to making large transactions or paying employees electronically. However, the impact on these companies might be less significant compared to SMEs, as they might have already negotiated lower transaction fees with financial institutions due to their higher transaction volumes.
However, the government’s revenue would be significantly affected by the removal of IMTT. The tax has been a reliable source of revenue for the government, contributing to its budget and funding various public services and infrastructure projects. On the other hand, removing the IMTT will stimulate demand within the economy and hence the government will benefit through taxes such as vat and income tax. Yet, if the removal of the IMTT does not stimulate the economy, the government would need to find alternative sources of revenue to make up for the loss. This could involve revising other taxes or seeking external financial assistance. Therefore, the government would need to scale the benefit from removing the tax against the loss of revenue from removing the tax.
In conclusion, the removal of the Intermediate Money Transfer Tax in Zimbabwe would have both positive and negative consequences. Taxpayers, especially individuals and SMEs, would benefit from reduced transaction costs and increased convenience, while the government would face challenges in replacing the lost revenue. The impact on large corporations might be less pronounced, but they would still experience some benefits. Overall, the change in fiscal policy would require careful planning and alternative revenue sources to ensure that essential public services and government functions continue to be adequately funded.