2% tax ill-thought out: Govt

Business
GOVERNMENT has admitted to not seeing the adverse market effects of its 2% tax on electronic or mobile money transfer transactions, amid revelations that corporate earnings are expected to be weighed down.

GOVERNMENT has admitted to not seeing the adverse market effects of its 2% tax on electronic or mobile money transfer transactions, amid revelations that corporate earnings are expected to be weighed down.

BY TATIRA ZWINOIRA

After Finance minister Mthuli Ncube announced the 2% tax on any transactions between $10 and $500 000 on October 2, prices shot up partly because businesses sought to recoup the cost of the new tax from consumers.

Further, real-time gross settlement (RTGS) and mobile transactions have slowed down with the latter seeing an average 18,25% week-on-week drop while the former has been more mixed since the announcement of the new tax.

“Look, I think in hindsight learning is always a good teacher and we wholly believe that we could have managed it better. so I think I would offer my apologies for not having engaged initially on the matter as we have realised. We did not anticipate the reaction that we got from the 2% tax which was actually due to our own oversight on the matter, but we could actually have handled it better…” Finance permanent secretary George Guvamatanga said lask week. He was telling the Parliamentary Portfolio Committee on Budget, Finance and Economic Development as he addressed their concerns over the bids and priorities for the 2019 National Budget in Harare on Monday.

“…(this has been an issue) not only with this committee or parliament, but with many other stakeholders. I think everywhere where we have gone this was such a very big issue. We should have consulted, prepared people, and I think what we can only promise is that in future we will do it differently. I am hoping I do not have to sit here again being asked why we did not do it (consult) before (implementing another measure in future).”  

Local financial Services firm IH Securities says the 2% on electronic and mobile money transactions will weigh down corporate earnings, increasing their costs and forcing them to pass the expense to consumers.

In an equities outlook released early last week, IH Securities said unless corporates passed the cost of the 2% tax onto the consumers, revenues would be impacted.

According to the Zimbabwe Quoted Companies Survey 2017, the 61 listed companies saw incomes of $681,34 million, up more than three times the 2016 comparative of $226,99 million due to the increase in RTGS and mobile transfers.

As such, the new 2% tax earnings is expected to hit listed firms’ incomes by over $10 million per annum with companies expected to pass that cost to the consumers.

Treasury currently expects the tax to add $700 million to its revenue per annum.

“The Ministry of Finance revised the Intermediated Money Transfer Tax that was implemented on the 1st of January 2003 at US5c per transaction, to US2c per dollar transacted from transactions worth $10, as a way to also tax the growing informal sector. This comes at a time when electronic and mobile phone-based financial transactions have taken over due to the absence of cash. The tax is expected to have a significant effect on corporate earnings if they do not pass on to their consumers,” IH Securities said.

“We believe the hardest hit will be the financial sector, mainly because they will not be able to raise their fees as these are capped by the RBZ (Reserve Bank of Zimbabwe). We believe banks will have to find more creative and innovative ways of growing their income line in order to safeguard their margins. Last year saw companies returning to profitability as revenue streams improved due to local liquidity driven by the informal sector.”

IH Securities said the return to profitability was particularly true with consumer facing businesses.

“However, we believe there will be a slowdown in spending as consumers will become more cautious when performing transactions,” IH Securities added.

Last year’s earnings were consumer-driven due to the increase in cashless transactions led by Econet Wireless Zimbabwe whose profits jumped nearly three times to $140 million from a 2016 comparative of $40 million.

Last year, the listed firms recorded an uptick in revenues of 23,8% to $7,64 billion from 2016’s comparative of $6,17 billion.