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2% transaction tax illegal: Court

HIGH Court judge Justice Happius Zhou yesterday ruled that the 2% intermediated transaction tax imposed by Finance minister Mthuli Ncube under statutory instrument 205 of 2018 was illegal and unconstitutional, but the ruling may be largely academic.


HIGH Court judge Justice Happius Zhou yesterday ruled that the 2% intermediated transaction tax imposed by Finance minister Mthuli Ncube under statutory instrument 205 of 2018 was illegal and unconstitutional, but the ruling may be largely academic.

Pro-democracy activist Mfundo Mlilo, who was represented by MDC deputy president Tendai Biti, successfully challenged the legality of the tax.

Ncube introduced the tax through SI 205 of 2018 on October 12 last year, which Mlilo argued was unconstitutional, as a minister could not amend an Act of Parliament through a statutory instrument.

Ncube’s tax, he said, was made without the necessary amendments to the income tax laws.

It is unlikely that the ruling will result in the lifting of the 2% tax because Parliament has since approved the tax by passing the Finance Act authorising the 2019 budget, and the subsequent supplementary budget issued on August 1, both of which allow for the 2% tax.

The 2019 annual budget was passed by the Lower House of Parliament on December 20, 2018 and by the Senate in January this year, while the supplementary budget was passed by both Houses last month.

The Finance Act itself was not the subject of any court action.

Biti conceded that the ruling does not have the effect of repealing the tax as long as the Finance Act that authorised it stands.

“We will study the ruling to see if we cannot challenge the (Finance) Act as well,” he said.

In a statement late last night, Ncube said: “That judgment will not affect the collection and levy of the intermediated money transfer tax because the collection of the tax under statutory instrument 205/2018 was subsequently validated by Parliament under the Finance Act No 1 of 2019. Consequently, the 2% tax will continue to be levied.”

A legal opinion earlier this year by legal think-tank Veritas said the “effect of back-dating is particularly doubtful in regard to the intermediated money transfer tax”.

Two clauses in the Finance Bill before Parliament in January (clauses 4 and 13) sought to rectify possible illegality of the tax “by amending the Finance Act and the Income Tax Act so as to allow the new tax to be levied and by back-dating the amendments to the date on which the original statutory instrument was published”.

However, in Veritas’ view at the time, the original SI remained “a nullity, so attempts to collect the tax are illegal and amount to unlawful seizures of property”.

Budgets are made effective by Finance Bills. The Finance minister can state a date on which a measure can come into effect.

If the Act comes later than the date announced for a particular measure, then the implementation of that clause will be retroactive.

In Parliament on December 20, Biti had argued that Ncube was usurping legislative powers by imposing the tax.

“So, it is only Parliament which makes the laws, so when the Minister of Finance and Economic Development on the 12th October, 2018 made law by repealing section 22 G of the Income Tax Act Chapter 23:06, he breached Section 134 of the Constitution of Zimbabwe,” Biti argued.

However, Parliament, by a vote of 80 to 26, voted through Clause 4 of the Finance Bill, which allowed for the 2% tax. Senate then also passed it.

Under section 4, the Finance Act number 1 of 2019, said: “With effect from the 13th October, 2018, section 22G of the Finance Act [Chapter 23:04] is repealed and the following is substituted — 22G Intermediated Money Transfer Tax: The intermediated money transfer tax chargeable in terms of section 36G of the Taxes Act shall be calculated at the rate of zero comma zero two United States dollars on every dollar or part thereof transacted for each transaction on which the tax is payable: Provided that if a single transaction on which the tax is payable is equivalent to or exceeds US$500 000, a flat intermediated money transfer tax of US$10 000 shall be chargeable on such transaction.”

Ncube has been quoted saying government was realising $80 million monthly from the tax.

Justice Zhou said reasons for the judgment would follow, but lawyers for the applicant are already calling on government to reimburse people their money.

Speaking after the ruling, Biti said government must do the honourable thing and reimburse millions of dollars it illegally taxed people.

“We haven’t seen the full judgment, but the import of it sets out the illegality of Mthuli’s actions. We have just told him he can’t override Parliament.

However, following this judgment, at the least people should be reimbursed the money they were illegally taxed from October last year to February at the very least,” he said.

“They were clever because they had also inserted the new tax into the Finance Act a day after our court case, but they did not repeal Statutory Instrument 205 of 2018. What it means is that the tax will remain in place until the Finance Act is repealed, but we have not seen the judgment, so we await the judgment so that we study it and take it from there,” Biti said.

The MDC was quick to celebrate the judgment saying it vindicated the party, which has long argued that President Emmerson Mnangagwa’s government was illegally milking the people of Zimbabwe.

Government could bleed over $500 million in tax rebates from October to February owing to the illegal tax. — additional reporting by newZWire

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