Why High Court ruling on 2% tax might not change anything

In Parliament on December 20, Biti had argued that Ncube was usurping the powers of Parliament through imposing the tax.

“So, it is only Parliament which makes the laws, so when the Minister of Finance and Economic Development on the 12th October, 2018 made law by repealing Section 22 G of the Income Tax Act Chapter 23:06, he breached Section 134 of the Constitution of Zimbabwe,” Biti argued.

However, Parliament, by a vote of 80 to 26, voted through Clause 4 of the Finance Bill, which allowed for the 2% tax. Senate then also passed it.

Under section 4, the Finance Act number 1 of 2019, said: “With effect from the 13th October, 2018, section 22G of the Finance Act [Chapter 23:04] is repealed and the following is substituted— 22G Intermediated Money Transfer Tax The intermediated money transfer tax chargeable in terms of section 36G of the Taxes Act shall be calculated at the rate of zero comma zero two United States dollars on every dollar or part thereof transacted for each transaction on which the tax is payable: Provided that if a single transaction on which the tax is payable is equivalent to or exceeds five hundred thousand United States dollars, a flat intermediated money transfer tax of ten thousand United States dollars shall be chargeable on such transaction.”

Ncube arrived at Treasury in September 2018 just after it had just put out a grim first half report showing a $1.34 billion budget deficit and domestic debt approaching $10 billion.

The 2% tax was part of his strategy to close the gap. From 5 cents per transaction, Ncube announced the tax would now be levied at 2 cents for every dollar transferred electronically.

The tax came as a shock, but it had already been in his plans, even before his appointment. In a series of prior interviews and write-ups, Ncube proposed “clever, technological ways to collect revenue” from the informal sector. With the bulk of the economy now informal, a new tax was needed to broaden the tax base, he argued.

“I advocate that we look at technological solutions, which is that, maybe, we start collecting taxes through mobile and airtime usage. So, find a point of collection, which is easy to collect through. So, through mobile phones, you start collecting taxes, you agree what makes sense in the informal sector,” Ncube said in an August 2018 interview.

It must have been easy for Ncube to convince government. The numbers made sense; by that time, on a tax by transaction basis, the 856 million electronic transactions recorded in the first half of 2018 would have yielded about $43 million for the fiscus.

By comparison, if Ncube’s proposed tax had been in effect since January, government would have collected some $1.3 billion – equal to the government’s budget deficit in the first half.

The tax has been hugely unpopular with consumers, as it made goods and services more expensive, while companies also say it has increased the cost of business.

But, for government, it has been a major revenue earner.

By January, Government had collected $166 million through the tax introduced last October, the Zimbabwe Revenue Authority (Zimra) has said. By mid-year 2019, Ncube was collecting close to $100 million per month.

Apart from closing the deficit for the first time in years, Ncube argued that the tax helped government support social spending. He tweeted how the 2% had helped fund support during the Cyclone Idai disaster. It was also funding rural infrastructure and social services.-NewZwire

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