Calls for IMTT removal intensify amid competitiveness concerns

Zimbabwe’s Intermediated Money Transfer Tax (IMTT) is severely undermining business competitiveness and driving the economy towards further informalisation, despite its initial success in boosting state revenue, according to the latest report by the National Competitiveness Commission (NCC).

Analysing the IMTT’s effects, the report finds that the tax continues to generate price distortions, impede financial inclusion, and stifle economic growth.

The NCC’s recent submission adds to the growing consensus among economic stakeholders that the levy on electronic transactions should be scrapped.

The NCC is Zimbabwe’s statutory body established to enhance the country’s productivity and competitiveness.

It aims to create a competitive environment for Zimbabwean businesses, as well as focusing on developing, coordinating, and implementing policies that improve national competitiveness.

Leading lobby groups, the Zimbabwe National Chamber of Commerce (ZNCC) and the Confederation of Zimbabwe Industries (CZI), have consistently voiced concerns about its negative impact.

The IMTT, a levy on electronic transactions, was introduced in 2018. Since then, it has been adjusted several times to balance revenue generation with addressing economic dynamics and stakeholder concerns.

Currently, the IMTT rate is 2 percent for transactions in local currency and 1 percent in US dollars.

However, for single transactions equivalent to or exceeding US$500 000, a flat IMTT of US$10 150 is applied.

Transactions up to US$10 are exempt from IMTT.

The NCC said the IMTT, levied on digital transactions, has led to a cascading tax burden as payments are made at various intermediary levels, significantly increasing the cost of doing business.

The inflated cost base has made Zimbabwean goods and services uncompetitive in both domestic and international markets.

Furthermore, the tax is pushing economic activity towards cash-based transactions, particularly in the informal sector, where goods are sold at lower prices to avoid the IMTT.

This shift undermines the use of formal financial services and reduces the effectiveness of monetary policy, as more currency is held outside of banks, the NCC said.

“High IMTT on digital transactions discourages the use of plastic money and boosts the holding of currency outside of banks,” said the NCC.

“This practice will undermine the financial intermediation role of banks, thus local industry failing to access concessionary funding, which is critical for enhancement of national competitiveness.”

The report highlights a dramatic decline in IMTT revenue contribution, plummeting from 27.6 percent in 2021 to just 4.6 percent in 2024, indicating a growing avoidance of digital transactions.

Additionally, the IMTT is disproportionately affecting low-income individuals and those in rural areas, reversing gains in financial inclusion.

Zimbabwe’s poor performance in financial inclusion, scoring 36.8 out of 100 in the 2024 Future of Growth Report, is partly attributed to IMTT.

A comparison of IMTT with other countries in the region shows that the Zimbabwean rate of 2 percent for transactions done in local currency is higher than those charged in the region. For instance, Tanzania levies 0.5 percent, the DRC 1 percent, Cameroon 0.2 percent, and Uganda 0.5 percent.

The report recommends that the Government reduce the IMTT rate to align with regional standards, make it an allowable deduction, and provide exemptions for essential transactions.

It also calls for further consultations between the Government and the private sector to develop sustainable revenue models that do not induce price distortions and raise production costs.

The CZI argues that the levy is crippling the formal sector and hindering economic growth.

It contends that the IMTT disproportionately burdens businesses, discourages the deposit of US dollars into the formal banking system, and places undue pressure on an already narrow tax base.

According to the CZI, the high IMTT is a punitive measure that undermines investment and increases compliance costs, ultimately stifling economic expansion.

In a bid to alleviate the burden on businesses and the public, the CZI has recommended the IMTT be scrapped or reduced to 1 percent.

The ZNCC considers the IMTT a cost-inducing tax on expenses, not revenue, similar to customs duties.

It argues that the 2 percent tax compounds throughout the supply chain, potentially leading to double taxation by being levied on VAT-inclusive amounts.

The ZNCC emphasizes the significant cost burden the IMTT places on businesses, particularly VAT collectors, and has actively engaged with the Ministry of Finance to advocate for its removal or refinement.-ebsinessweekl