Biti and Mthuli Ncube battle it out over rationale of 2 percent tax

HON. PROF. M. NCUBE:  Thank you Mr. Speaker Sir. If I could proceed.  It was important at the beginning for me to explain the rationale behind the 2% tax and that was the build up for me to get to the answer.  When an economy is informalised Mr. Speaker Sir, one should design a tax instrument that is inclusive, that also touches on the informal sector. So, we decided to introduce an electronic transaction tax in the way that we proposed it but also we put exemptions because we are acutely aware that our population that is at the bottom of the pyramid, to use that phrase, transactions of $10 and below should be exempted, otherwise the tax becomes regressive. At the same time, we are acutely aware that corporates are also providing jobs. They are responsible citizens and they are paying taxes. There should be a cap on the amount of tax they pay overall through this 2% transactions tax.

There is also a list of other exemptions such as exemptions for instance for pensions, equity investments, money market and so forth. So, we believe that this tax will go a long way in making sure that we have an inclusive tax system. A tax system that will also help us stop the bleeding in terms of the size of the budget deficit and I will quickly switch to cost containment measures, that is cutting Government expenditure which I will announce at the time of the budget. I thank you Mr. Speaker Sir.

HON. BITI: I have a supplementary Hon. Speaker. Hon. Minister, for all intends and purposes, the country is in a recession. Therefore, introducing a tax and one that is so retrogressive, I say so because it treats everyone as equal; whether you are rich or poor, you will still pay the 2% transaction that is very cruel. So, you cannot introduce a tax and collect more when people are actually in a recession and need to spend. In addition to this, Zimbabweans have resorted to the use of alternative methods of payment including mobile phone transfers and electronic transfers because we cannot use our cash. Our cash disappeared because of the overdraft facility you were talking about. You cannot force us to use cashless money and then follow and tax. There is something cruel about that and you cannot do that.

THE HON. SPEAKER: Hon. Biti, you have made a statement but there is no question.

HON. BITI: The question is that why is the Government imposing this additional transaction tax when we are in a recession? Why are you imposing the transaction tax when you forced us to abandon the use of cash because of the overdraft facility that was implemented by the Government?

HON. PROF. M. NCUBE: Thank you Hon. Speaker and thank you Hon. Member for that supplementary question which will help clarify issues as I answer. First of all, Zimbabwe is not the first country in Africa or in the world to introduce this kind of tax. In other countries, the tax rate is even higher. It is much higher in other countries and 2% is not as high as in other countries. Secondly, the tax is not retrogressive. On the contrary, it is progressive and I will explain.

The previous tax did not take into account the value of the transaction and that is why we amended it. It was really by the fact that you pay the same amount per transactions regardless of the value. This time around, it is linked to value. So, it is progressive in that sense. We actually corrected a regressive situation and turned it into a progressive tax. Hon. Speaker, it is also not correct to argue that the economy is in a recession. The economy is not in a recession. There is a technical definition of recession which is two successive quarters at least of negative economic growth. I submit that we have not had two successive quarters of negative economic growth, neither do we expect future growth to be negative. On the contrary, we have increased our projection of economic growth to the order of 6%. Thank you Hon. Speaker Sir.

HON. PHULU: The supplementary is whether the Minister is saying Government policy is to tax poor people who for instance pay school fees using RTGs as opposed to those who can source actual cash and have more money and can pay their school fees in cash?

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