HomeLocal NewsGovt, Zimra urged to review IMTT on domestic remittances

Govt, Zimra urged to review IMTT on domestic remittances

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BY SIZALOKUHLE NCUBE
The government has been implored to urgently review cash-in and cash-out taxes on mobile money transactions, and reduce the levies to allow for growth of domestic foreign currency remittances and promote financial inclusion, analysts have said, with some calling for the elimination of the contentious tax altogether.

This was after Finance Minister, Prof Mthuli Ncube at the weekend published Statutory Instrument 92 of 2022 (SI 92) that introduced a 4% Intermediated Money Transfer Tax (IMTT) on all domestic foreign currency remittances.

Information gathered by this publication shows that customers will now be charged 4% when they cash-in, or deposit money into their wallet, another 4% when they send the money to another person, and another 4% for cashing-out or withdrawing their money, bringing the total IMMT burden to 12%. In addition, customers will also fork out 3% in transactional fees.

For instance, a customer depositing into his wallet to send US$100 to a loved one will have to part with US$4 tax when cashing in. The balance deposited into their wallet becomes $96. When they send the money the $96 is further taxed by 4% (which is $3.84) and the balance becomes $92. The receiving customer upon withdrawing the money is slapped by another 4% (amounting to $3.69). All these taxes, totalling $11.53 on the $100 remitted, exclude the operator charges.

“The government is killing the goose that `lays the golden eggs by increasing the tax burden on millions of poor and marginalised customers who use mobile money platforms for their day to day transactions,” said economic analyst Francis Mukora.

“By imposing taxes on cash-in and cash out, at a time when banks do not attract taxes on cash deposits and withdrawals, the government is creating distortions in the market and discouraging the use of mobile money platforms,” he added.

Market experts believe that by waiving – or significantly reducing taxes on cash-in and cash-out transactions – the government can widen its tax base and be able to channel US dollars circulating in the informal sector into the financial services market.

“With the exemption of cash-in and cash-out transactions, the government will grow its revenues through increased remittances from IMTT, which would otherwise be lost as people opt for cheaper ways of sending money via buses or other informal means,” said University of Zimbabwe-trained economist Michelle Mugwagwa.

Domestic foreign currency remittances have become a hit with many consumers who are using hard currency to buy groceries, pay bills and buy airtime, among other things. This has resulted in a number of banks and mobile money platforms scrambling to serve the growing market.

Last week, the Zimbabwe National Chamber of Commerce (ZNCC) said the government’s decision to implement a 4 percent IMTT on all domestic foreign currency transactions will decimate the country’s ailing economy.

“Individual households and firms are now forced to transact mainly in local currency because the 4% is a huge add-up to the cost of doing business, eating up savings and profits. This symbolizes a fast-paced de-dollarisation taking place. Any move towards full-scale de-dollarization is ill-timed,” said ZNCC in a letter to the Finance Ministry and to the Reserve Bank of Zimbabwe.

“The punitive tax regime in Zimbabwe is the major cause of the high level of informality in the economy. Zimbabwe is among the top five informal economies in Africa alongside Benin, Gabon, Central African Republic and Nigeria,” added the business member organisation.

This view was also supported by economic advisory firm Akribos Research, which indicated that Zimbabwe’s economy is already overtaxed and the IMTT of 4% on foreign currency transactions will deter formal transactions and fuel more black-market activities as economic agents withdraw their funds and convert to local currency that attracts a lower tax.

“This may negatively impact corporates which have been benefiting from collecting some of their revenues in foreign currency. Foreign currency banking is likely to decline, and forex cash transactions will be the order of the day as households attempt to avoid taxes,” the company said in a research note.

“The policymakers will be more effective if they promote actions that will lead to the use of formal banking channels by levying a fee for withdrawing cash and reducing the costs of using electronic funds.”

Regional financial services unit BancABC also said the increase of IMTT tax to 4% will derail financial inclusion gains made in the past few years.

“The high IMTT effectively means that the market will avoid depositing the US$ into the banking system. This will increase informalisation of the economy as transactions will be on a cash basis and outside the formal channels,” the bank said.

OK Zimbabwe chairman Herbert Nkala recently urged the authorities to review the IMTT as it was negatively affecting business operations and profitability.

“The huge IMTT expense is not tax deductible and this (has) further compounded the tax burden on the business. Resultantly, the effective tax rate for the group increased from 27.4% in the prior year to 39.4% recorded in the first six months of the financial year,” he said.

“We urge the fiscal authorities to review the structure of this tax so as to reduce its undesired consequences on tax compliant formal businesses.”

 

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