Tax relief must reach consumers
The Treasury is right to question whether cutting the Intermediated Money Transfer Tax (IMTT) would actually benefit consumers or simply give businesses another opportunity to protect their margins.
Finance, Economic Development and Investment Promotion permanent secretary George Guvamatanga warned that tax relief is meaningless if it does not translate into lower costs for households and businesses.
The warning comes as banks and industry lobby for the abolition or substantial reduction of IMTT, arguing that the levy raises transaction costs, discourages digital payments and drives economic activity towards cash and informal channels.
Those concerns are legitimate. IMTT, which accounted for about 6% of government revenue in the six months to June, has become an important fiscal instrument. But its revenue importance should not obscure its wider economic costs.
The banking sector is right that a tax imposed broadly on electronic transactions can distort payment behaviour, discourage formalisation and weaken financial intermediation. If businesses and consumers deliberately consolidate transactions or migrate to cash to avoid the levy, Treasury may ultimately collect less revenue while the formal economy becomes shallower.
Guvamatanga’s observation that previous reductions did not produce corresponding declines in business prices deserves serious attention. If companies have already embedded IMTT into their pricing structures, removing the tax without requiring a corresponding adjustment risks transferring the benefit from consumers to corporate balance sheets.
Treasury should therefore resist pressure to cut IMTT simply because industry is demanding it. Any reduction must be anchored in a credible mechanism for passing the savings through the economy.
This does not necessarily mean imposing blunt price controls. Rather, government should demand transparency from sectors benefiting from tax relief, strengthen competition and monitor pricing behaviour to establish whether the savings are being transmitted.
At the same time, Treasury must recognise that an excessively high transaction tax can become self-defeating. A tax that pushes economic activity outside the banking system ultimately erodes the very tax base it is designed to support.
The right approach, therefore, is neither to defend IMTT indefinitely nor abolish it blindly. It is to redesign the levy so that it raises revenue without punishing formal economic activity.
A lower, smarter and more targeted IMTT, particularly for productive-sector and value-chain transactions,could encourage formalisation while preserving part of the revenue stream.
