THE governing Zanu PF party has woken from a deep slumber.
The 22nd Zanu PF’s National People’s Conference, which ended in Mutare on Saturday, resolved that the Intermediated Money Transfer Tax, commonly known as IMTT, must go.
Reading out the resolution at the end of the conference, Zanu PF legal secretary Ziyambi Ziyambi said the party had directed government to promote “formalisation and banking through the removal of the IMTT (intermediate money transfer tax) transaction charges and reduction of other bank charges, making ZIG more accessible, affordable and attractive for all domestic financial transactions, thereby promoting financial inclusion and strengthening the nation’s monetary stability”.
The tax was introduced by Zanu PF appointee, Finance, Economic Development and Investment Promotion minister Mthuli Ncube, in 2018 to expand the tax base and raise resources to meet government’s growing needs.
Ncube has over the years insisted that the tax is necessary, saying it mobilised resources that absorbed the shocks triggered by the COVID-19 pandemic.
The tax head has been maintained for seven years, despite concerns from business member organisations (BMOs) which argued that it was putting an additional cost on players and that it was also fuelling informalisation.
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The World Bank weighed in, saying the taxing of formal transactions incentivised the use of the informal, cash-based system. It proposed that IMTT should be made tax deductible for companies, which incentivises formalisation.
Treasury tweaked IMTT, amid calls by experts for it to go, saying modifying it was akin to putting lipstick on a pig.
Yet, IMTT has been one of the top performing tax heads.
Of the net collection of ZWG116,47 billion realised last year, IMTT weighed in with 5,71% of the net revenue. Last year IMTT experienced real growth of 83,37%. This came after it recorded real revenue of ZWG9 793 623 235,97 in 2024 from ZWG5 340 846 118,80 the previous year.
However, this revenue haul for Treasury came at a cost.
Informalisation has risen exponentially amid revelations that US$2,5 billion is circulating outside the formal system.
Rising informalisation means there won’t be any transmission mechanism of the monetary policy as the economy is underground.
There have been concerns that the high informalisation in the economy means that the tax punishes those that are tax-compliant.
As informalisation increases, cash transactions also increased which means that Treasury loses revenue in the process.
The potential fiscal gains from macroeconomic stabilisation and reversing informalisation are substantial, according to the World Bank.
It estimates the potential medium-term gains in increased tax revenue collection at 3,4% of GDP.
Treasury must make a choice between growth in IMTT revenue and rising informalisation.
BMOs have spoken. The World Bank added its voice. Zanu PF’s call to scrap IMTT could be the icing on the cake.
Rising informalisation is a threat to the economy and there must be incentives to bring all players into the formal system. One of the incentives is scrapping IMTT.
Work must start now.