Treasury must heed banks, business concerns
As Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube prepares to present the Mid-Term Budget Review, he should give serious consideration to growing calls from banks and business leaders to scrap the Intermediated Money Transfer Tax (IMTT).
Introduced during a period of acute fiscal stress to bolster government revenues, the IMTT may have served a temporary purpose.
Today, however, the tax has become increasingly counterproductive, undermining the very economic activity on which sustainable revenue growth depends.
The IMTT effectively taxes every electronic transaction, placing a levy on commerce itself.
Businesses incur the charge repeatedly as goods and services move through supply chains, creating cascading costs that are ultimately passed on to consumers.
At a time when companies are grappling with high borrowing costs, exchange rate uncertainty and an already onerous regulatory environment, the IMTT further weakens competitiveness and raises the cost of doing business.
Its most damaging consequence, however, is behavioural. Rather than encouraging financial inclusion and digital payments, the tax incentivises the use of cash. Businesses increasingly consolidate transactions or avoid formal banking channels altogether to minimise costs.
The result is a shrinking deposit base for banks, weaker financial intermediation and reduced capacity to finance productive sectors of the economy.
Ironically, a tax designed to increase government revenue may now be constraining long-term revenue growth. As economic activity shifts outside the formal financial system, government forfeits potential collections from value-added tax, corporate income tax and Pay-As-You-Earn.
Formalisation declines, transparency is weakened and the national tax base becomes progressively narrower.
It is therefore not surprising that the Bankers Association of Zimbabwe and the Zimbabwe National Chamber of Commerce have urged Treasury to abolish the IMTT or, at the very least, implement a structured phase-out while exploring less distortive alternatives.
Sound tax policy is not measured solely by how much it collects in the short term. It must also promote investment, productivity, compliance and economic expansion. A broader tax base generated by stronger economic growth is ultimately more sustainable than imposing heavier taxes on an increasingly smaller pool of compliant taxpayers.
The Mid-Term Budget Review presents Treasury with an opportunity to demonstrate that it is committed to building a competitive, investment-friendly economy.
Removing the IMTT, alongside broader tax and regulatory reforms, would send a strong signal that government is prepared to remove obstacles to formal business growth and encourage greater use of the banking system.
