Why 2 per cent tax is bad news for Zimbabwe economy

ZwNews Chief Correspondent

The 2 per cent tax that was recently imposed by government on electronic transactions is counter productive, an economist with a reputable financial institution has said.

In an effort to widen its revenue base, the government instituted the tax, but this proves to be causing some negative impacts on the economy, it was promulgated to promote.

Reverse effect.

An economist with Grant and Thornton Tapiwa Dalu, has pointed out some negative effects of the tax, says it will affect the whole supply chain and resulting in increased costs of goods, that would be passed on to the consumer.

He says that the tax will act in reverse to the government’ push for a cashless economy, as traders would use cash in an attempt to avoid paying the 2 per cent.

As stated by him, the tax would also see the rise in informal sector, while most business people would prefer keeping their money not in bank, but in form of cash, for the same reasons.

He noted that because of the increase in cost of production owing to this tax, local products would lose the competitive edge against imports. More so with the recent suspension of the Statutory Instrument 64, which restricted cheap imports.

He adds that the 2 per cent is also imposing double tax on businesses as it is calculated inclusively on some products which attract value added tax.

Dalu says basic economics state that tax is charged on revenue and not vice versa; “Tax is charged on revenue and not on expenses. The 2 per cent is basically taxing taxpayers on an expense and not on revenue,” says Dalu in an article he wrote, put by Veritas Zimbabwe on its website, with his permission.

He adds that the tax would affect some of the exempted transactions, unless the trader comes forward to explain to the financial institutions the reason for such transactions. He also gave example of how it can affect social basics like school fees, benefit funds, and medical supplies and services, adds that these has always been exempted from tax.

The tax came at a time the prices of basic commodities have been rising owing to the inflation tendencies of the bond note. This has also been compounded by the recent panic buying by Zimbabweans that led to shortages of goods in shops.

The government responded by suspension of imports restrictions, further exposing local industry to stiff competition from cheap imports.