Dear President Mnangagwa
I was quite pleased to hear you announce that the 2% tax on all electronic transactions will be reviewed. This is good news and this letter serves to point out some of the issues you may want to consider as you review this tax.
Individuals are as important as companies, only poorer
One of the transaction types that is exempted from this tax is when funds move between two accounts held by the same company. This makes sense because no value would really have been created, the transfer from one account to the next will be just an administrative exercise.
The same is true for individuals. A good number of us hold more than one bank account and we use these different accounts for different types of transactions. We are thus not asking for special treatment but to just get the same treatment that companies are getting. Whatever form this tax will take after the review, let transfers between accounts held by the same person be exempt.
Bank to Ecocash affects even more people
What I have been describing above is an even bigger problem when you consider mobile money wallets of which Ecocash is the dominant one. A lot of times we move money to our mobile wallets because the mobile money services have a wider merchant distribution network than banks have through POS devices.
Individuals are thus paying 4% of their money to government before VAT or anything else is even considered. They are being taxed 2% on transferring money from their bank account to their mobile wallet and then they pay another 2% when they use the money in the wallet for buying goods and services.
Mr President, this is no different from the government expecting a tax whenever I move money from my left pocket to my right pocket.
$10 threshold is arbitrary
The minister of finance adjusted the tax to only be levied on transactions above $10. However, this threshold was never scientifically explained. Is it because the average transaction value is $10? Actually no, the average value of transactions that went through in the second quarter of this year is $76. Is $10 the median value? I don’t know but I don’t think so.
I would propose that the rational and scientific approach to establishing this threshold should be perhaps equating it to the cost of the average family’s monthly food basket. The minister of finance declared that the $10 threshold was protecting the poor when he was in the UK on one of his trips. What I didn’t hear was the scientific explanation of why this was the case.
The upper value of 10k is scandalous
$10 000 being the maximum that can be paid of this tax per transaction is just too much. The fact of the matter is that there is no ceiling to this tax for the average individual or the above average individual. The ceiling is reached when the transaction value is half a million dollars!
The majority of our companies are not even moving such sums at one go let alone individuals. Again, the ceiling has to be computed from a scientific basis not a number out of the hat.
Real business has been lost
Here at Techzim we were offering a service for which our margin was 1% or 1.5%. This is no longer feasible, because the tax we incur when we want to move that money is higher than the margin itself. I don’t think we are the only ones. This introduced tax means that anything that gives a margin of below 2% is not worth it. The scale of the internet allows viable businesses to be established that gain such low margins. The tax is killing that source of jobs jobs jobs…
You are a busy man Mr President so I have to end this here. I tried to point out little tweaks that could make the tax bearable assuming that it is here to stay. I hope and trust that you will give full consideration to these and other issues regarding the transaction tax.
Sincerely,
Tinashe T. Nyahasha
PS: Mr President you can buy the Techzim Insights report on the state of Zimbabwe’s payments sector. It’s only $9.99 via Ecocash below:
11 comments
BRAVO
In a normal country swipe transactions are free, for a nominal monthly flat fee. Bank transfer are also free or nominal fee. Transferring money – except if you are Western Union or World Remit, is not the service. Money is transferred to pay for a service. The service, not the money, is taxed. I am not a money transfer agent. When I transfer money to my wife, husband, child, mother, grandmother, cousin – that is not supposed to be taxed. The bank may have charged when giving me the money. To charge again when I pay for services is not rational. There is now a charge for giving cash to a child who wants to go to school. That is beyond belief. Someone is getting value for no real work done (by me or anyone else, at the point of that transfer), that violates principle hence cannot be sustained. Out of what profit have I to pay ?
Oh you used better words than I could!
i am paying tax for giving my child money for food at university, if i could have withdrawn cash, but the same people are failing to make cash available at banks. This money was also taxed when i got it as salary from my employer (payee) so munoda kuti tidiiko nhayi veduwe!
That tax should not be reviewed but shld be repelled. How can I be taxed for simply senting money to my mother, son, friend etc. And she will be taxed upon spending the money to buy goods which already carries VAT. Don’t forget I also pay PAYEE
Yeah tax in transactions where no value has been created is a hard sale
bought a car but the agent wanted zipit only….so first i have to move in my bank 500 at a time so not only 2% but all those ecocash charges….then zipit again so another 2% plus bank charges….heres a sugestion keep the 2% and reduce the bank charges who should now look for another avenue of business besides charges ….econet included….collect the 2% and make all transactions below 1000 free…this way gvt and transactors win and banks can now concentrate on other aspects of making money insteAD OF RIPPING US OFF ON CHARGES.everyone wins
Eish, sorry! This must have been a nightmare experience
Tinashe thank you for expressing articulately the conversation I was having with my bank. The other matter I was thinking about is not taxing financial services companies on services such as loans. If you taxing a money provider that cost tends to go towards the customer. 2% is a high cost for establishing a loan and in the end adds to the cost of borrowing
Oh yes you are right Terence. I had not thought of that actually
Lets be REAL the electronic tax is necessary as the MAJORITY of Zimbabweans are either not tax compliant or not employed etc yet there is vast amounts of ‘money’ circulating electronically. The tax should be looked at holistically – like reduction in company taxes/ bank charges/ PAYE and maximum amounts to be paid so that the employed and struggling companies are given a bit of relief