The Great Contradiction: Mthuli Ncube’s New Transaction Tax Is Accelerating Us Back To The Past

So the big news yesterday was something we have always known but that Mangudya finally admitted: the USD is not equal to bond notes which are not equal to money that is in electronic circulation in Zimbabwe. The second biggest news was that the government is now dipping it’s fingers and getting 2% of the value of all electronic transactions.

This was announced by the new Minister of Finance, Mthuli Ncube:

I hereby review the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective 1 October 2018.

Yes, effective yesterday. The minister didn’t specify whether there is any floor or ceiling to this tax. If not, it means for transferring $10 000 one pays $200 to state.

The motivation

It is the motivation for this that I have problems with. Here is what Ncube says (emphasis mine):

Treasury introduced the Intermediated Money Transfer Tax with effect from 1 January 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 information we have so far is that in 2018 1.7 billion transactions went through as compared to 50 million four years ago.

To put this in plain language, the motivation is that the government has grown greedy and is drooling over the value that is being moved electronically. When you break down the statement above you realise that it contradicts itself. The true motivation is greed.

All governments are greedy. It’s OK because taxes are the biggest way governments can extend social services. However, the greed of governments in Africa has historically not been aligned to economic development. It’s sad that Zimbabwe seems to be walking down this road. No I am not talking about corruption.

Good greed and bad greed

Good greed says, “Hey, I want to increase my tax base. I will grow the cake so I can get more. I will incentivise business to thrive so I can get more taxes out of more activity. I will reduce the burden of taxation on entrepreneurs so they can grow to be able to support my needs.” Good greed is also called delayed gratification.

Bad greed says, “Hey, there is a problem I need money let me look around where I can squeeze. Oh, there has been 1.7 billion electronic transactions this year so far when there were 50 million such transactions for a full year four years ago, that’s it! I am gonna get a piece of that action. I’m the tax man, I’m entitled to this.” Bad greed is also called myopia, laziness and being a bully.

It is not the first time that our government has been motivated by bad greed and a lot of times it’s tech related stuff that has suffered. Not so long ago, Mobile Network Operators were perceived to be making too much money and therefore a health tax was introduced on their services. Really now? Health?

Bending over backwards (or is it forwards) for foreign ‘investors’ but not local

The thing I struggle with whenever I hear that “Zimbabwe is open for business,” is that this is always in the context of so called investors coming into Zimbabwe. The government is promising milk and honey to every non Zimbabwean who will listen and to us Zimbabweans we are promised jobs, jobs, jobs.

Has it occurred to the powers that be that some of us want to also create jobs for ourselves and our countrymen and women? Overtaxing us whilst offering golf courses in game reserves to foreign presidents just tells where the priorities lie. This is not unique to Zimbabwe, it’s an Africa problem.

The problem is there is easy money beyond our shores although this money comes at the cost of the birth right. As long as our idea of receiving investments into the economy is equal to receiving donor funds, bail outs, debt reprieves then our governments are not incentivised to listen to local business. They don’t really need local businesses to thrive for them to fill up the treasury coffers. They only need the ‘benevolent’ World Bank, IMF, Western powers, the Chinese to smile on them.

Local businesses and indeed the whole population is squeezed hard for short term expenditure and to allow the government to raise enough taxes so the government can repay loans and of course the end game is that the government can start borrowing again…

But the minister consulted business

Early on Mthuli Ncube held consultative meetings with business leaders. The problem is, the meeting was with the so called ‘captains of industry.’ What does that term even mean? These guys are captains of what industry? Holding a conference with executives at big businesses is not enough.

To be frank, the millions of jobs that need to be created in Zimbabwe are in large part going to be created by small businesses. Even in America, small businesses employ the most people. This is triple true for Zimbabwe. No offense, but as a leader of a small business, I don’t think the CEO of BAT or such huge companies can even start to understand the needs of my business. The result of that being out of touch is the introduction of tax ya Zakeyo (Zacchaeus’ tax) that was introduced yesterday after consultations with ‘captains of industry.’

For example, the level of usage of electronic means of payment tell the story that Zimbabwe is pretty much ready to boom in e-commerce. This is a totally new value chain that will be set back by the extortionery 2%.

Putting out fire with fire

Mthuli Ncube says the move to increase tax is motivated by the fact that there has been a great informalisation of the economy. That statement is self contradicting. Does the minister expect to dissuade the informal trend by discouraging electronic transactions that can be traced? The service fees from banks already make it compelling to stick to using cash and now the minister is adding to that cost.

I wrote that Zimbabwe risks progressing backwards because people were using electronic channels for transactions not because they see the light but because they are forced to. Little did I know that Ncube and Mangudya would accelerate that retrogression. I thought their job to do was to get people off bank queues, now even I am considering rejoining the bank queue which I had last done a while ago.

Anyway, I may go on ranting forever. Let me give these guys the benefit of the doubt, maybe they see what I cannot see. However, if all they see are the 1.7 billion electronic transactions performed thus far in the year then we have problems. A big chunk of those transactions will go on to become cash transaction again and that’s the last they will see of them.

We will probably keep using the electronic channels regardless

We will most likely keep using EcoCash, RTGS, ZIPIT and all the rest. Why? The central bank will keep forcing us to by limiting money supply. There won’t be enough bond notes to go around so we will bite the chin and pay Zakeyo with our sweat and blood every time we buy our daily bread at $1.10 out of our FCA RTGS account which is of course at par with our FCA Nostro account if we have such…

The Techzim Insights team produced a report on how the payments sector in Zimbabwe is structured and in there you can find out what does what in the 1.7 billion transactions. The report is selling for $4.99 and you can pay for it below:

Buy the The Payments Systems Environment In Zimbabwe Report now for US$4.99 ONLY using EcoCash.

The post The Great Contradiction: Mthuli Ncube’s New Transaction Tax Is Accelerating Us Back To The Past appeared first on Techzim.