HomeOpinion & AnalysisLegitimacy of transaction tax

Legitimacy of transaction tax


FINANCE minister Mthuli Ncube issued a tax directive concurrently with the Reserve Bank of Zimbabwe’s Monetary Policy Statement on October 1, 2018.


It had far-reaching effects on the economic, human and property rights of citizens.

The transaction tax is a knee-jerk attempt to muddle out of a big mess as the government has no money and is desperately looking for it in every nook and cranny.

It has to raise funds for its operations and to pay the burgeoning $17 billion debt it accumulated over the years.

There are presently very few viable alternative fund sources available to it, so in desperation, it has once again turned to the citizens to raise money through taxes.

Ncube’s prescription was a shock increase of the intermediated money transfer tax from five cents per transaction to two cents per every dollar or 2% for every electronic money transaction with immediate effect.

Needless to say, this has not been well-received by the generality of the public.

The legal correctness of the sweeping ministerial directive needs to be scrutinised in the context of property and human rights.

Sceptics have always doubted and questioned the government’s commitment to respecting and protecting property rights.

Does the government have the right to unilaterally impose new taxes willy-nilly on citizens whenever it needs to raise funds?

Do the citizens have any recourse against government’s excesses? Is the ministerial pronouncement legally binding?

Money is property and in property law, the principle is that the owner of a thing is allowed to do whatever they want with it as long as it is legal.

Property ownership is sacrosanct and the property is protected from arbitrary seizure through theft or dispossession by anyone, including the State itself.

The State is obliged to guarantee the protection of property rights through installing laws and penalties for disturbing these rights.

The State guarantee is the principle upon which capitalist philosophy and practice hinge.

Section 71(2) of the Constitution states: Every person has the right in any part of Zimbabwe to acquire, hold, occupy, use, transfer, hypothecate lease or dispose of all forms of property either individually or in association with others.

When there is a national culture of respect and protection of private property rights, there is an increase in investment in property and business in a country.

The current sluggish levels of investment in Zimbabwe show lack of confidence and reluctance by investors who fear their property might not be safe as policies can change anytime.

Investors need to be assured that they can recoup their investments and be able to keep and enjoy the return on their investments without onerous conditions and taxes.

People need to be assured that even if possession and control is disturbed for whatever reason, they can trust that the laws will help them restore their rights.

People should not always be worried that the government can suddenly change its policies and goal posts without warning and leave them with losses and no recourse to the law.

Ironically, the Zimbabwe government has been at the forefront of interfering with property rights, instead of protecting them. The ever-changing and unpredictable government policies and directives mean that property is not safe in Zimbabwe, yet section 71(3) states no person may be compulsorily deprived of their property.

Anyone seeking to challenge the ministerial directive has to rely on section 71(3), which gives the only two justifications for compulsory deprivation of property by the State.

Taxes and levies are compulsory deprivations of property and payment of tax is a duty by all citizens.

Compulsory deprivation of property is permitted when there is a law of general application such as VAT Act or Capital Gains Act.

The payment of taxes is enabled by statutory instruments or parliamentary Acts and until Parliament approves the minister’s transaction tax it is a legal nonentity and must be challenged in court if it has already been implemented.

It is illegal to charge it without the enabling legal instrument in place such as amending the Finance Act.

Section 298 of the Constitution strictly forbids the introduction of new taxes without parliamentary approval.

Section(1a) prescribes fairness in sharing the burden of taxation, so there is need to prove that the exclusive taxation of electronic monetary transactions is fair as no such burden is imposed on cash transactions.

More than 95% of monetary transactions are now electronic, with the majority of users being low-income earners such as informal traders and rural people.

Is it fair to add another tax burden to already overtaxed poor people?

Section 298(2) specifically states that no taxes may be levied except under the specific authority of the Constitution or an Act of Parliament.

This has not been done and no debate about the tax has been tabled before Parliament.

There may be a temptation to defend the new tax on the grounds that it is not a new tax as the intermediate transfer tax has always been there, but it is a new tax with a different application.

It is essential to follow due procedure and laid-down guidelines in order to be legally compliant.

It is even more important for government to set a good example than to be the flagship law breaker.

In 2016, the imposition of bond notes caused a stir, as they were introduced without a legal instrument enabling them.

Statutory Instrument 2016-133 of 2016 Bond Notes Regulations was retrospectively cobbled together hurriedly through the Presidential Powers (Temporary Measures) Act after questions were raised about the propriety of implementing a law without following the lawful process for its enactment.

The ministerial pronouncement has also had the unintended negative effect of causing flash price hikes as unscrupulous retailers, chancers and opportunists wasted no time under the pretext of cushioning themselves against the proposed tax even before it was implemented.

In terms of Section 71(i), a compulsory tax can only be applied if it is in the interests of defence, public safety, public order, public morality, public health, or town and country planning or subsection (ii) in order to develop or use that or any other property for a purpose beneficial to the community.

Those are the only circumstances property can be compulsorily confiscated.

However, there has been no properly articulated reason to justify the increase of the transaction tax that government realised that the recent huge growth of electronic transfers was a lucrative source of revenue.

Electronic transactions are the newest and easiest fat cash cow just ready for milking by government.

Good sense dictates that government policies should not be proposed and implemented so arbitrarily and hurriedly without proper consultation and ensuring legal compliance.

No matter how broke and indebted and desperate the government is, it still has to follow due process otherwise it is just a robber.

Therefore, any implementation of the new transaction tax before its proper enactment and approval by Parliament must be challenged.

Government should not be at the forefront of breaking its own laws

Recent Posts

Stories you will enjoy

Recommended reading