Government’s increase of IMTT tax sparks concern among businesses

The recent increase of the Intermediate Money Transfer Tax (IMTT) from 1% to 2% on all foreign currency payments by Finance Minister Mthuli Ncube has sparked concern among businesses, with many expressing worry over the potential impact on the economy.

Speaking in Parliament last week, Corban Madzivanyika, a member of Parliament, said the increase in IMTT tax, combined with the 5% margin charged by banks and the 1% administration charge by the Reserve Bank of Zimbabwe (RBZ), will result in a total of 8% being deducted from foreign currency transactions.

This, he argues, is not cost recovery and will force businesses to seek alternative markets, potentially leading to a surge in black market activities.

“So, when a company goes to the bank, they are going to have the other 2% of IMTT tax. Not only that Madam Speaker, but the RBZ also charges 1% administration charge to that amount.

“So, if you add 5% plus 3% plus 1 % you will get to around 8%. That is technically not correct because you know what, those businesses cannot be forced to sell at the inter-bank rate, yet to get the resources, they are bought at an exchange rate which is not cost recovery.

“So, technically and to be honest Madam Speaker, something must be done as a matter of urgency to correct that situation. Otherwise our companies will end up finding their goods at the black market, which is what we do not want, Madam Speaker,” he said.

Madzivanyika also highlighted the need for the government to address the issue of confidence in the local currency, citing the country’s history of currency changes and policy inconsistencies.

He cited the importance of creating trust in the Zimbabwean Gold currency and ensuring its widespread adoption.

Madzivanyika further called for the need for divisibility of the local currency, the importance of policing policies effectively, and the need for a new approach to addressing the dynamics of the informal sector.

The debate on the proposed recommendations by the Budget and Finance Committee and the Committee on Industry and Commerce on the Monetary Policy Statement comes at a time when the country is grappling with economic challenges and seeking solutions to stabilise the economy.

In an interview with Nehanda Radio commentator Pride Mkono argues that individuals are overtaxed, leading to minimal disposable income for basic needs. To address this, she suggests increasing the tax threshold to around US$450, benefiting low-income earners like civil servants.

He notes that the government already collects various taxes, such as IMMT and Value Added Tax, making a low tax threshold unnecessary and harmful to the economy and individuals’ spending power.

“Basically, individuals are overtaxed by the government. It’s bad for the economy because most individuals have very little disposable income to meet their basic needs.

“There is actually a need to put a higher tax threshold of around US$450 and above. That would do well so well so that the majority of people who actually earn less, particularly civil servants,” he said.

“If the government still gets many taxes like the IMMT tax which is charged on bank transfers and it still gets Value Added Tax when individuals spend, so there is really no reason why the tax threshold should be so low because in then impact negatively on the economy and the ability of individuals to spend.”