Treasury orders refunds for exempted 2% tax transactions

Treasury has widened exemption on selected foreign currency denominated transactions from the two percent tax in response to submissions by stakeholders.

Those considered would now be refunded through a mechanism coordinated by banks and the Zimbabwe Revenue Authority (Zimra).

The Ministry of Finance and Economic Development, through the 2020 Mid-Year Budget Review, which was presented to Parliament in July, extended the Intermediated Money Transfer Tax (IMTT), popularly known as the 2c tax, to cover foreign currency transactions with effect from 1 August 2020.

The move was consistent with the Government policy, which allows businesses to charge prices for goods and services in both local and foreign currency. The decision was buttressed by the promulgation on 28 October 2020, of the Finance Act Number 8 of 2020, which gave legal effect to the proposed measure.

However, following representation by some stakeholders, the Government gazetted Statutory Instrument 261A of 2020 exempting selected foreign currency denominated transactions from paying the 2c tax.

In a notice yesterday, the Treasury advised the public that it has added more transactions on the 2c tax exempted list and pledged to compensate concerned players.

These include the transfer of foreign currency awarded to any bidder on the foreign currency auction system operated by the Reserve Bank of Zimbabwe (RBZ) to the foreign account of any authorised dealer. Also exempted are transfers of Zimbabwean dollars by an authorised dealer to the RBZ in settlement of foreign currency awarded to any bidder on the forex auction system.

The new list also covers transfer of foreign currency by authorised dealers in settlement of international obligations for the importation of goods and services as well as transfer of forex by traders to the RBZ for sale on the foreign currency auction.

The last segment covers transfer of Zimbabwe dollars by the RBZ to traders or authorised dealers as settlement of foreign currency sold of the forex auction platform. In view of this, the Government has directed that financial institutions that withheld IMTT in respect of the above transactions to refund or reverse such deductions.

"The Zimbabwe Revenue Authority (Zimra) stands ready to assist financial institutions that had withheld and remitted IMTT on the aforementioned transactions through a refund mechanism," said the Treasury.

In the past industry and commerce executives had complained that the two-cents tax was chewing into their profits with some calling for its total abolishment arguing that it was a double taxation. However, the Government has defended the tax head for widening the revenue base and including informal players.

Proceeds from the tax have been channeled towards critical development projects for the country, according to the Treasury.