HARARE – Finance Minister Mthuli Ncube raised tax on electronic financial transactions from 5 cents per transaction to 2 cents per dollar transacted in a bid to raise billions of dollars to shore-up the revenue base.
PROF MTHULI NCUBE
The cash-strapped Zimbabwe government is battling a huge budget deficit and a growing internal and external debt.
Ncube, speaking moments after Reserve Bank governor John Mangudya delivered his Monetary Policy Statement on Monday, said there was need for “urgent reforms” and “bold decisions” to stimulate growth and sustainable development.
Justifying the tax increase, which will hit already struggling Zimbabweans and drive people away from the banking system, Ncube said he was responding to the increased use of mobile money.
“The Treasury introduced the Intermediated Money Transfer Tax with effect from January 1, 2003, through the Finance Act 15 of 2002. The tax was set at 5 cents per transaction, which was a specific tax. However due to the increase in informalisation of the economy and huge increase in electronic and mobile phone based financial transactions and RTGS transactions there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and RTGS system,” the minister said.
So far in 2018, he said 1.7 billion transactions went through as compared to 50 million four years ago.
He went on: “I hereby review the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective October 1, 2018.
“I am therefore directing financial institutions, banks and ZIMRA, working together with telecommunication companies to extend the collection to all electronic financial transactions.”]
Domestic debt rose from US$275.8 million in 2012 to current levels of US$9.5 billion against US$7.4 billion external debt, bringing the total public debt to US$16.9 billion.
Government borrowing with the central bank was $2.3 billion as at end of August 2018, well above the statutory limit of $762.8 million, Ncube said as he ordered a curtailment of RBZ advances to the government.
“Borrowing from the Reserve Bank shall not exceed 20 percent of the previous year’s government revenues at any given point,” he said.
Treasury Bill issuances had increased from $2.1 billion in 2016 to a cumulative $7.6 billion by the end of August 2018. In 2014, Treasury Bills to GDP ratio was at 4.4 percent, which had increased sharply to 36.5 percent by the end of August 2018.
“This is a cost to government. Excessive issuance of short-term debt instruments at high interest rate also crowds out the private sector and compounds the increase in government recurrent expenditure,” Ncube said.
“Accordingly, the government in its management of domestic borrowing, is reviewing the use of Treasury Bills in support of socio-economic development programmes.
“Going forward Treasury will seek to finance government’s vital socioeconomic development programmes by use of instruments that ‘crowd in’ the private sector, including public private partnerships or government guarantees to financial institutions.
“Such guarantees will only be a contingent liability to government, unlike Treasury Bills that have a direct and immediate cash flow implication on government. In addition, recourse to the guarantee scheme would require demonstration by a financial institution that they have made best effort in seeking to recover the loan from a borrower. Precisely, any issuance of Treasury Bills, in the future will only be through the auction system, a more market-oriented system. This will improve the process of price discovery and better pricing.
“The duration profile of the current domestic debt will also be lengthened in line with inflationary expectations.”
The economy was showing signs of recovery albeit with a number of challenges and risks, Ncube said, as he projected growth of 6.3 percent against the original budget projection of between 4.5 percent and 4.8 percent.