‘IMTT USD tax disincentive to banking’

The Bankers Association of Zimbabwe (BAZ) says the 4 percent Intermediated Money Transfer Tax (IMTT) on local US dollar transactions has been a disincentive to banking, which has kept most customers away from digital banking channels.

Presenting on the topic “Inclusive Growth in a Digital Era” at a recent sector event, Bankers Association of Zimbabwe (BAZ) president Mehluli Mpofu said sector players and the Government should co-exist working towards building confidence in the financial services sector.

“More importantly from the financial sector and the policymakers, we need to build confidence and offer frictionless payments both from an efficiency and cost perspective, we know 4 percent IMTT on USD transactions will keep most customers away from digital channels,” he said.

Effective May 2022 all domestic foreign currency transfers were subjected to attract the four percent IMTT.

As part of measures to promote the usage of local currency, President Mnangagwa announced a new 4 percent IMTT on all domestic foreign currency transfers. The idea was to make transacting in foreign currency expensive so that people opt for the Zimbabwe dollar.

The punitive measure was introduced at a time when the central bank estimated that US$1,5 billion was being transacted in the informal market, far beyond the foreign currency circulating formally.

Apart from the 4 percent IMTT, Mpofu said the level of financial literacy among most target groups remains low and in this respect, financial literacy programs need to be enhanced as one of the key pillars of financial inclusion that will result in increased banking activities.

However, the Zimbabwe National Chamber of Commerce (ZNCC) in its pre-budget statement said US dollar transaction tax on foreign currency transactions have resulted in starving the supply of foreign currency liquidity to the formal banking channels.

“Despite the increase on IMTT on foreign currency transactions in May 2022, there was already a public outcry that bank charges are too high on Nostro accounts of which the greater part of the charges is Government taxes and levies.

“This has an unintended consequence of compelling formal businesses to accept hard cash only and operate through informal channels, which is outside the confines of the laws of the land,” it said.

It noted that the Government, through the Ministry of Finance and Economic Development, strongly urged to take a self-stance on compliant formal businesses which consists of just 20 percent of the businesses operating in Zimbabwe.

“Given the recent policy announcement that the multi-currency regime will be in effect during the entire duration of the National Development Strategy 1 (NDS1), we urge the Ministry of Finance and Economic Development to review the IMTT on foreign currency, from 4 percent to 2 percent.

“We recommend the levelling of the playing field with regards to the taxes on the transfer of funds in both local and foreign currency,” said ZNCC.

The business chamber said the government should allow IMTT to be tax deductible and its application has to be different between businesses and consumers.

“The burden of the IMTT tax is huge on business and therefore, the Chamber proposes that the Ministry of Finance and Economic Development should allow the IMTT to be tax deductible and it should be removed when remitting tax to ZIMRA,” it said.

ZNCC president Mike Kamungeremu said the build-up on those two taxes is so huge for business and for exporters the cost is so huge.

The Confederation of Zimbabwe Industries (CZI) measure is punitive to the formal sector and is also threatening the depositing of US dollar into the financial systems as firms try to avoid losing 4 percent of the value whenever they transact.

“The tax base is currently too narrow and complying firms are already overtaxed. Government is placing too much emphasis on taxing the shrinking formal sector and in the process increasing their tax burden and creating unfair competition with the informal sector,” it said.

It noted that the IMTT is not an income tax but is actually a transaction tax, but since it is now applied to all transactions, even on formal businesses that also pay corporate tax, it is high time the IMTT tax is deductible just like other transaction taxes.

CZI indicated the need to increase withholding tax from 10 percent to 30 percent was aimed at enhancing tax compliance; the ZIMRA system is not ready for facilitating tax repayments or facilitating registration.

It said the 30 percent withholding tax is now a burden to taxpayers as recoveries are very difficult.-ebusinessweekly