One of the most shocking bits of the latest mid-term budget was the pronouncement by Finance Minister Mthuli Ncube, that the 2% tax will now start applying to foreign currency transactions as well. Also known as the IMTT (Intermediated Money Transfer Tax) it is easily the most hated policy that Mthuli Ncube has put in place and is unpopular with a lot of people.
Increased usage of USD has weakened Mthuli’s ability to raise money via the 2% tax. Previously, forex transactions were exempt from the tax. Not anymore. From August, the 2% will now also apply on forex transactions, Mthuli announces
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It’s not clear how this tax will work when it comes to foreign currency transactions. Will it apply to Visa/MasterCard transactions as well? A lot of Zimbabweans use prepaid MasterCard and Visa cards to pay for various services online including ACCA fees and to travel and college expenses for students who are abroad. Adding a tax on this means cardholders will have to scrounge for more foreign currency in order to pay tax.
Also contrary to popular belief, Mthuli Ncube did not introduce the IMT tax, it was always there but it was a fixed fee of a few cents. This means that the amount did not go up (vary) in direct proportion to the amount involved in the transaction. By making it a percentage Mthuli Ncube brought the existence of this tax to the fore and he has since been associated with the tax.
Fundraising for civil servants
Last month the government promised civil servants an allowance of $75 which they said will be paid into Nostro FCA accounts. The midterm budget says civil servant allowances will be exempt from taxation that means possibly exempt from the 2% IMT tax. It is very possible however that the government wants to make sure it is able to raise money and be able to pay these allowances by taxing foreign currency transactions. A tax of 2% might however be too steep especially if it ends up being levied on USD allowances of employees of other companies.
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