Controversial forex tax slashed by 50%
FINANCE minister Mthuli Ncube (pictured) yesterday succumbed to pressure from industries and proposed a massive cut to the intermediated money transfer tax (IMTT) on foreign currency transactions from 4% to 2%.
The tax triggered controversy when it was introduced early this year, as firms complained that it would complicate an already bad situation characterised by high costs and various taxes.
Businesses have been pressuring the Treasury chief to slash the IMTT.
Presenting his $4,5 trillion 2023 national budget in Harare yesterday, Ncube said the government had observed that some entities were now transacting in cash, instead of electronic transfers to avoid the tax.
“In order to promote use of the banking system, I propose to align the IMTT on foreign currency transactions to local currency transactions at a rate of 2%,” Ncube said.
“This measure takes effect from 1 January 2023. In addition, the government will consider reviewing other measures to strengthen the foreign currency system, including the 20% surrender requirement for domestic foreign currency transactions,” he added.
In order to mitigate against highECONOMY er wheat prices and consequently the price of bread and other wheat products, Ncube proposed to exempt from IMTT, the transfer of funds to farmers, for the purchase of wheat by private off-takers approved by the Agricultural Marketing Authority, for the period September 1, 2022 to March 31, 2023.
Ncube also said corporates were allowed to offset the value of investment in capital equipment against taxable income over a maximum period of four years. However, inflation has eroded the unredeemed balances of capital investment qualifying for deduction in the determination of taxable income.
He said recent policy measures to address the erosion of value for unredeemed capital allowances only covered outstanding balances as at 2021, hence corporates were reporting artificial profits, thereby increasing the tax burden.
“In order to restore value, I propose that unredeemed capital allowances as at January 1 2023 be rebased to the local currency equivalent of the outstanding foreign currency invoice value at the beginning of each financial year,” he said.
Whereas the value-added tax (VAT) deferment facility was put in place to mitigate the cashflow impact on business, Ncube said the benevolence had, however, been abused by most of the beneficiaries through non-payment after the due date.
“I, therefore, propose to review the minimum threshold for the deferment facility from the current US$500 000 to US$1 million, with effect from January 1 2023, in order to mitigate against revenue loss to the fiscus,” he said.
In order to curb speculative borrowing, thereby stabilising the exchange rate, the bank policy rate was revised to 200%, with effect from June 24, 2022.
Despite the increase in the bank policy rate, the Finance minister said interest on outstanding tax remains at 25%. Tax revenue has, thus become a cheaper source of working capital, hence some companies no longer prioritise remittance of tax, to the detriment of the fiscus, he said.
“In order to limit accumulation of tax debts, I propose to align the interest rate on local currency tax debts from 25% to the bank policy rate, with effect from December 1 2023. The interest rate on foreign currency tax debts will, however, remain at 10% per annum,” he said.
Ncube said a number of taxpayers were deliberately delaying payment of tax obligations in order to benefit from loss of value.
“Whereas, charging higher interest on outstanding taxes remains an option, this must be complemented with additional measures to induce compliance. I propose that all outstanding tax debts be converted to the foreign currency equivalent at the time the debt is incurred.
“Payment of outstanding tax will, however, be made in local currency using the prevailing interbank exchange rate at the time of payment.
“I propose to compel financial institutions to remit tax collections to the consolidated revenue fund within 48 hours of receipt from taxpayers,” he said.