4% Forex Tax and Withdrawal Levy: Banish the Idea of ​​USD Banking Forever

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Wangu wangu wangu! Perhaps an overplayed meme at this point, but it perfectly captions the response I and many others had to the new economic measures introduced by the President late last week. Chief among these measures was an incentive to use local currency by imposing a 4% tax on currency transfers together with the intermediate tax on money transfers. (IMTT) for the local currency remaining at 2%.

The government is implementing, with immediate effect, a differentiated taxation system for the tax on intermediate fund transfers (IMTT) as follows:

(i) 2% would continue to apply to local currency transfers; and

(ii) All domestic transfers in foreign currency to attract an Intermediate Remittances Tax (IMTT) of 4%

President’s speech (via The Sunday Mail)

The first question this raised in my mind was…

Why is the government prioritizing reported figures over the needs of the average Zimbabwean?

I’m definitely preaching to the choir and forgive me for doing so, but it seems like the macro outlook seems to be taking precedence over the micro outlook. By this I mean that there is a priority for issues that affect the big numbers that we see reported by the government than the effects of policies on the average household.

We are all well aware that the only way to hold any kind of value these days is to hold USD in cash. This allows people to hedge their bets against the parallel market rate and make gains to improve their purchasing power. This unfortunate practice is a consequence of living in Zimbabwe, as many lose money if they hold the local currency for a period of time.

ZWL$ has become a currency that people buy things with to gain an advantage over business owners who are not up to date with the ever-changing parallel market rate.

What I thought was “Way 1” of doing things was to introduce incentives for the average person to put their dollars in the bank. Zimbabwe is a largely informal economy and even those in formal employment have scrambles where they earn money in order to meet their ongoing commitments.

Why then would the government openly discourage the electronic transfer and use of the USD in favor of a currency that does not have a certain rate on the street? Isn’t it incumbent upon the Ministry of Finance to draft measures that will make it easier for the average Zimbabwean to renew confidence in the financial system instead of making mattress banking a risk worth taking ?

I would like to have the answers to these questions, however, it seems that the financial authorities are relentless in discouraging the official use of a currency which is unanimously the one with which everyone wants to deal. I mean even some government institutions, like the passport office, only accept payment in US dollars.

Why there is no shared consensus between the average Zimbabwean and the government that until there is certainty and support for the local currency the USD is a necessary evil, this is beyond me…

The withdrawal levy

In addition to the 4% tax on currency transfers, the government has also announced a levy on USD withdrawals…

There is a preference for withdrawing foreign currency for transaction purposes, which jeopardizes IMTT recoveries, since cash withdrawals are not subject to IMTT.

To discourage cash withdrawals that are traded on the parallel market, the tax on cash withdrawals for amounts over USD 1,000 will be, effective immediately, revised from 5 cents per transaction to 2%

Again… Who is going to think it makes sense to deposit their hard-earned dollars to face a 4% tax if they gamble to use it electronically and get slapped with a 2% tax for withdrawals over $1,000 ?

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