Bursting the bubble:
the 2% tax is still here for a while
By Obey Chitowamombe
What is Intermediated Monetary Transfer Tax (IMTT)?
IMTT is basically the tax levied on all transactions mediated by financial institutions and mobile money platforms such as RTGS payments, payments through Ecocash and Telecash etc. S.I 205/2018 provided that the IMTT chargeable in terms of Section 36G of the Taxes Act shall be calculated at the rate of USD0,02 on every dollar transacted for each transaction.
Background of S.I 205/2018
Austerity is the term that easily comes to mind when one thinks about S.I 205/2018. The S.I is to be understood against the government’s austerity measures launched under the Transitional Stabilisation Programme in October 2018. Austerity measures are policies aimed at reducing government spending and or increase tax revenue. As part of the austerity measures, the government raised the IMTT from 5 cents per transaction to 2 cents per every dollar transacted. This tax was through S.I 205/2018. The government has not yet given in to widespread calls for its scrapping by the business world and the population at large for the various adverse effects it has had. This hike was meant to ensure the government raked in greater revenue through the IMTT.
The Court’s Judgment
The judgment in the case of Mfundo Mlilo v Minister of Finance and Economic Development HH605/19 ignited a lot of hope for the nation. Many have been reeling under the pressure of the 2% tax levied on every dollar per transaction. A cursory reading of the judgment instils hope for the ordinary man. However, it is essential to assess if the judgment is bringing anything that is worth celebrating or not.
The Applicant (Mlilo) approached the court seeking the setting aside of the Minister’s decision to review Intermediated Money Transfer Tax (IMTT) from 5 cents per transaction to 2 cents per dollar per transaction. The Minister’s decision was with effect from 1st October 2018. Applicant further contended that the Finance (Rate and Incidence of Intermediate Money Transfer Tax) Regulations be set aside and declared a nullity. Thirdly, the Applicant sought an order for the repeal or amendment of section 3 of the Finance Act Chapter 23:04. Fourthly, Applicant prayed for costs of suit on a higher scale.
The court did not accede to the Applicant’s third request as this amounted to usurpation of the legislative powers by the judiciary.
“As regards the request for the setting aside of the IMTT and the legality of S.I.205/2018, the court determined these issues on a constitutional basis”
As regards the request for the setting aside of the IMTT and the legality of S.I.205/2018, the court determined these issues on a constitutional basis. The honourable court extensively considered the principle of separation of powers in reaching its decision on the legality of S.I. 205/2018. The court concluded that inasmuch as the Minister has powers to make Regulations as provided for by section 3 of the Finance Act, the section did not confer the Minister the power to amend existing legislation. Amending an Act of Parliament is the sole prerogative of Parliament. Reference was made to various sections of the Constitution such as section 116, 118 and 134 which establish the principle of separation of powers. The amending of the Finance Act through S.I 205/2018 was in contravention of the abovementioned sections. On this basis, the court declared S.I 205/2018 invalid.
Are the taxpayers entitled to a refund in light of the court’s judgment?
The answer to this inquiry is in the negative. The Finance Act No. 1 provides that the tax collected and levied is with effect from the 13th of October 2018 and the Finance Act was properly amended.
Is this the end of the 2% IMTT?
The court’s decision is of not force as it was overtaken by events. Parliament amended section 22G of the Finance Act before the finalisation of the Mlilo matter. Section 22G of the Finance Act was further amended by Finance (No. 2) Act, 2019.
This means that IMTT is now being levied and collected in terms of Finance (No. 2) Act, 2019 that is two cents per dollar transacted with a flat cap of ZWL15,000-00 for transactions equivalent or exceeding ZWL750,000-00.
This article has shown that the court’s judgment has little significance if any in terms of the applicability or otherwise of the IMTT. It should not sway people to think that this is the end of IMTT as noted above. Up until a challenge is brought against the actual IMTT provided for under the Finance Act and a decision is made outlawing it, the IMTT will continue to be levied and collected as provided for under the Finance Act.