TAURAI MANGUDHLA/
BERNARD MPOFU
Capital market players have confronted Government over the introduction of a 2 percent tax on money transfer saying such a move will push them out of business.
The market teamed up yesterday and penned a letter to the capital markets regulator, Securities Exchange Commission of Zimbabwe (SECZ), saying the new tax would make the Zimbabwe Stock Exchange (ZSE) among the highest cost markets in the world.
They also described it as a disincentive at prevailing market interest rates, anti-business and contrary to the spirit of being open for business.
In a move widely seen as potentially disastrous for business and a desperate ploy by Government to widen its revenue base, especially at a time electronic transactions dominate payments systems due to cash shortages, newly appointed Finance and Economic Development Minister on Monday said intermediated money transfer tax had been increased to 2 percent from five cents per transaction effective October 1, 2018.
The sharp spike in transaction taxes, capital markets players say, will affect short term investments on the money markets and returns on the ZSE which thrive on volumes. Fund managers who spoke to Business Times said their business was now under threat.
They are seeking for the tax to be reversed or at least get exemptions for their sector.
“We have engaged SECZ and the matter is now being discussed and we hope they will respond soon,” said a fund manager who requested not to be named.
“The 2 percent tax is a disincentive for investment in the sense that money markets at current interest rates of 4 percent per annum will generate negative returns.
“If you invest $1 million you will get $40 000 interest but for argument’s sake you will then be charged $20 000 for a bank to bank transfer and another $20 000 when you receive your money. So suppose this investment is for 90 days then your profit of $10 000 is less than the $40 000 you lose,” added the source.
Another source said the tax has killed the money market. Under such circumstances, argued another fund manager, the money market needs interest rates of between 20 and 30 percent per annum to be sustainable for players.
“You need to jump to 20 or 30 percent interest rate which is difficult. The tax burden is just too much and no one will invest.
“The other question which remains unclear is what happens when you roll over. Also suppose you move your money from the investment account into the settlement account in the same bank, what happens?”
A stockbroker said the tax would drive costs on the ZSE on both the buy and sale sides to about 8,1 percent, putting it among the highest cost markets in the world and deterring investment.
“This is totally unacceptable and we hope the authorities will see it in their wisdom to reverse it or exempt us otherwise business becomes unsustainable,” said the stock broker, adding that a formal appeal had been made to Government through SECZ.
The capital market players also said short term investments will be unprofitable. They also said a number of their clients, specifically pensions’ funds and the new tax would affect them.
Observers said last night the new tax would affect C-Trade, a new platform where would be investors buy shares on their mobile phones and online. They say more clarity was required on how the new tax would be administered.
“We are yet to establish how it is going to be administered because we have a number of questions to be answered.
Who will bear the costs of settlements? But for now it’s a still quite hazy and we will soon establish that,” said a source familiar with the operations of C-Trade.
SECZ chief executive officer Tafadzwa Chinamo confirmed receipt of the letter, although he could not be drawn to comment
