Business

Mthuli Ncube clarifies 2% tax

WHILE the objective of Intermediate Money Transfer Tax (IMTT) was to bring the previously untaxed informal businesses under the tax bracket, captains of industry claim it has had double taxation effect on formal operators, thereby inflating the cost of goods.

But Finance and Economic Development Minister Mthuli Ncube, holds a different perspective and says the IMTT (2 percent tax) has turned perennial budget deficits into surpluses.

The budget surpluses have been achieved since January 2019 with cumulative excess of $800 million recorded between January and June 2020.

Minister Ncube says the surplus revenue has been deployed towards social protection, emergency needs during drought and disaster, as well as development of key infrastructure like roads and bridges.

However, the Zimbabwe National Chamber of Commerce (ZNCC) says ordinarily, tax is charged on revenue not expenses, as such it is not expected that this tax be regarded as a deduction in the determination of corporate income taxes.

“Currently, section (16)1 (d)1 of the Income Tax Act prohibits the claiming of the tax on income as an expense for income tax purposes,” ZNCC said.

The IMTT has tax-free thresholds in both local and foreign currency of $300 and US$5, respectively. Transactions of amounts exceeding $2,5 million and US$100 000 attract a flat rate of tax of $50 000 and US$2 000, respectively.

In its proposals for the 2021 National Budget, ZNCC said it must be noted that (IMTT) is a tax on an expense not revenue, and so should be regarded as a cost to business, the same way other transaction taxes like custom duties are treated. ZNCC said the IMTT, levied at 2 percent per transaction, has a compounded effect on the supply chain due to the incremental tax charged from the producer right up to the point of consumption.

It said the two percent is charged on producers on acquisition of and processing inputs, wholesaler’s packaging, storage and delivery of products, retailer’s acquisition, storage and resale. For instance, the IMTT is calculated over and above the total amount payable plus the value added tax (VAT), at the same time not recognising the rules of double taxation.

The effect is to lump a further significant cost on business given that every registered taxpayer is an agent of the revenue collector who charges and collects VAT on behalf of the Government.

“As such, tax payers are being charged on payment of taxes through agencies,” ZNCC said.

The industrial lobby group wants the Government to refine the tax and address some concerns being raised by industry.

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