Latest News Editor's Choice

Opinion / Columnist

Nothing wrong in principle with 2% electronic transfer tax

06 Oct 2018 at 09:14hrs | Views
"In this world, nothing can be said to be certain, except death and taxes," observed presciently Benjamin Franklin (1706-1790), one of the founding fathers of the United States, who was both a philomath - a seeker of knowledge and facts; and a polymath - a person of wide knowledge and learning, whose expertise spans a significant number of different subject areas, known to draw on complex bodies of knowledge to solve specific problems.

Indeed, taxation is as certain as death, thus, while unwelcome as death, cannot be avoided as death. That is largely one of the reasons why the recent measure to tax 2% of all electronic money transfers announced by Reserve Bank governor John Mangudya has, like death, not been celebrated. It has been criticised in some circles, but that is only natural because people - including economists themselves - don't all see things the same way.

However, what is important is to establish the validity or not of that condemnation; and the genuineness of outright condemnation so as to establish whether those doing that are merely taking sides against the government for political expediency - like those claiming to be against the removals of vendors from the streets of Harare. Or whether they are expressing their views like Franklin as both philomaths and polymaths, people of wide knowledge and learning who have mastery of the subject of taxation, not just commenting with reckless abandon over a matter they know next to nothing about. A caveat: I am neither a tax expert nor an economist, but am very much into pragmatic economics, thus, unlike playing politics that has everything to do with the political agenda of some political parties and their interest groups and very little to do with getting the economy moving. Necessary and painful measures have to be taken. It's about short-term pain for long-term gain, because there is no other way. So, all this talk about taking the government to court and the Zimbabwe Congress of Trade Unions threatening demonstrations should be seen for the brouhaha that it is - a noisy, alarmist and over-excited response from the usual suspects in the business of being "anti" everything from the top. Of course, lawyers will make money in the mix.

And, in the same vein, to get the economy moving, vendors must be removed from the streets. An uncontrolled and harmful increase in the numbers of a particular animal, insect or plant species, like the invasive water hyacinth which is choking Lake Chivero, Harare's main source of water, cannot do anyone any good. These vendors might try to re-invent themselves as having always been opposition supporters and the opposition itself might try to "steal them" as their own loyal and unwavering supporters, but the truth of the matter is that the vendors were released onto the streets by Grace Mugabe like a swarm of bees, like a plague of rats. Only last year, these vendors clashed with MDC demonstrators calling for a shutdown of Harare, didn't they?

Before Grace's unlawful directive, vending in the city was manageable. After her "directive" ordering the Zimbabwe Revenue Authority and Zimbabwe Republic Police not to touch the vendors, tax revenue diminished as floodgates of smuggling were opened. Vending became the problem, not the solution. One vendor said last week: "When we were still operating in the city centre, in Park Street, I could make $200 a day on a good day."

You can bet that she was not selling local goods, but smuggled goods without any duty paid, which became a sink hole swallowing the economy, completely destroying jobs. They were selling brand new imported goods supplied by sophisticated smuggling networks. They had become a parallel economy, and this had to be put to a stop. So, sending vendors mixed signals, on the one hand, by giving them false hopes and empty assurances that they will not be evicted, and, on the other hand, condemning the new tax measures necessisated by, among other factors, loss of revenue due smuggling by the very same vendors, is highly irresponsible hypocrisy. As any police officer knows, killers don't always look the part. Similarly, liars don't always look the part, so it's up to the vendors themselves to listen closely and carefully to determine if they are not being lied to.

Back to the tax, Oxford University-educated former Zanu-PF MP Charles Majange's observation was quite helpful as he factored in the sensitivities of those people against the move at face value: "The Ministry of Finance must find a way of distinguishing between business and non-business transfer. I don't think a tax on wedding gifts, lobola and school fees was being envisaged. The principle of tax exemption has to be maintained."

Majange can separate issues without using offensive language unlike a section of vile intellectuals who spit venom at anyone who does not hate who and what they hate. This is a helpful, educated and informed problem-solving approach refocusing the tax authorities, on the one hand, and disarming the usual suspects who criticise anything and everything through selectively using their learnedness because in the real world, solutions always lie somewhere in the middle. By extension, the solution to Zimbabwe's economic problems does not lie with any one political party.

Ethan Malibongwe Moyo has unpacked the tax measure thus: "I feel it's more about raising money. It's projected to raise an incremental $2,5 billion per year - that's over 60% of the current budget at no incremental cost or infrastructure as banks and mobile platforms remit.

"This will plug the fiscal budget, it will reduce the crowding-out effect, lower rates, lower domestic borrowing and the surplus can be used as an infrastructure stimuli.

"The surplus can also be used to fund exporters so as to reduce the trade deficit.

"It also has to be coupled with austerity measures to cut expenditure. In any case balances in the mobile platforms sit with banks somewhere, which is why there is incest between Econet and Steward Bank."

Moyo - as both a philomath and a polymath - has laid it out lucidly, and this can be a starting point for refinement of the tax measure, as it should be. As one can see, Zimbabwe is not short of calm and composed intellectuals who can dissect issues without using offensive language, of which Moyo's namesake, the toxic Jonathan Moyo, is notorious for, making all his comments tainted by political partisanship right from the beginning.

And tax should always be viewed through a cost-benefit analysis lens because viewing it in isolation through only the percentage stipulated or increase is meaningless. In Israel and Sweden, taxation is quite high, but so are the benefits from it. So, in those two countries, it is a necessary evil.

Observed Malibongwe Moyo: "We may debate about the rate of the tax, but the principle is right on the mark as it is an effective tool to raise and broaden fiscus in an informal economy with low banking penetration rates, another advantage of financial inclusion, Uganda is on 3% and Kenya is on 10%."

Indeed, in principle there is everything right and proper with taxing 2% of all electronic money transfers and the tax will stay in one form or another as happened in the past when the government announced its intention to set up the National Aids Levy and National Social Security Authority and went on to do so - despite the noisy, alarmist, and over-excited reaction from the usual suspects.

Conway Nkumbuzo Tutani is a Harare-based columnist. Email:

Source - newsday
All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24's community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.