Punitive tax driving Zimbabwe into cash economy

Zimbabwe's business community has issued an unprecedented warning to Finance Minister Mthuli Ncube, saying the country's punitive tax system, particularly the 2% Intermediated Money Transfer Tax (IMTT), is driving the economy deeper into informality and eroding confidence in the banking sector.

In frank submissions made during pre-budget consultations ahead of the 2026 National Budget, industry groups including the Zimbabwe National Chamber of Commerce (ZNCC), the Bankers Association of Zimbabwe (BAZ), the Confederation of Zimbabwe Retailers (CZR), and the Tourism Business Council of Zimbabwe (TBCZ) accused the government of overburdening formal businesses and consumers, while incentivising cash transactions.

The private sector's strong pushback comes as Ncube insists the IMTT - introduced in 2018 - remains a "critical revenue lifeline", accounting for about 8% of national tax collections. But businesses argue the tax, coupled with complex compliance requirements, is crippling formal operations and undermining Zimbabwe's own goal of building a cashless economy.

"The current 2% rate increases costs, distorts supply chains and encourages cash usage amidst efforts by the Reserve Bank to promote a cashless society," said the ZNCC, calling the tax a "form of double taxation."

According to business estimates, as much as US$2.5 billion may now be circulating outside the banking system, while the Reserve Bank of Zimbabwe previously pegged the amount at US$500 million in 2021.

The BAZ warned that keeping the levy unchanged would continue to erode public trust in formal banking, urging its "significant reduction or removal."

"Lowering or scrapping the IMTT would incentivise formal banking, expand the taxable base, and reduce cash-based informality," the bankers said.

Analysts say the 2% tax - once a short-term revenue patch - is now pushing businesses underground, worsening the already high cost of doing business.

The ZNCC added that Zimbabwe's complex tax framework and porous borders were further bleeding the economy, estimating over US$1 billion in lost annual revenue through smuggling and untaxed imports.

"This undermines the goals of the National Development Strategy and the Zimbabwe National Industrial Development Policy," the chamber said.

The CZR said the IMTT had effectively created a cash-only economy, leaving banks with low deposits and limited ability to fund industrial recovery.

"Most micro and small retailers operate informally not out of defiance, but because of complexity, inaccessibility, and high compliance costs," the confederation said.

CZR also criticised the government's reclassification of basic goods - such as sugar, flour, and cooking oil - from zero-rated to VAT-exempt, arguing this policy inflated retail prices by removing the ability to reclaim input VAT.

"The ultimate effect is regressive, as consumers unknowingly absorb embedded taxes," the group warned, calling for a return to targeted zero-rating on essential items.

The Tourism Business Council of Zimbabwe (TBCZ) supported the push for tax reform, saying the system was worsening the cost-of-living crisis and suppressing disposable incomes.

It proposed increasing the tax-free income threshold from US$100 to US$350 per month, alongside a 30% cap on the top marginal income tax rate to align Zimbabwe with regional peers.

"This would encourage formal employment, improve compliance, and help retain skilled professionals," the council said.

The growing business revolt now places Ncube in a politically difficult position. At Zanu PF's annual conference in Mutare last month, delegates passed a firm resolution calling for the immediate removal of the 2% levy, directly contradicting the minister's stance.

Ncube told legislators that removing the IMTT without an alternative source would leave a major revenue gap, possibly forcing government to raise VAT - another deeply unpopular move.

Economists say the confrontation signals a deeper structural crisis: a tax system originally designed to plug leaks is now stifling growth, innovation, and financial inclusion.

"The IMTT worked in the early days to shore up revenue," one analyst said. "But now it's punishing production and trust in banks. Every extra cost pushes companies and households back to cash."

As the 2026 National Budget approaches, pressure is mounting for Ncube to deliver a sweeping overhaul of Zimbabwe's tax regime - one that shifts focus from extraction to productivity and investment.

If the warnings go unheeded, business leaders caution, the exodus from banks will accelerate, taking the formal economy down with it.