The Great Contradiction: Mthuli Ncube’s New Transaction Tax Is Accelerating Us Back To The Past

Tinashe Nyahasha Avatar
Mthuli Ncube National Venture Capital Fund NVCF startups Zimbabwe Ministry of Finance

So the big news yesterday was something we have always known but that Mangudya finally admitted: the USD is not equal to bond notes which are not equal to money that is in electronic circulation in Zimbabwe. The second biggest news was that the government is now dipping it’s fingers and getting 2% of the value of all electronic transactions.

This was announced by the new Minister of Finance, Mthuli Ncube:

I hereby review the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective 1 October 2018.

Yes, effective yesterday. The minister didn’t specify whether there is any floor or ceiling to this tax. If not, it means for transferring $10 000 one pays $200 to state.

The motivation

It is the motivation for this that I have problems with. Here is what Ncube says (emphasis mine):

Treasury introduced the Intermediated Money Transfer Tax with effect from 1 January 2003 through the Finance Act 15 of 2002. The tax was set at 5 cents per transaction, which was a specific tax. However due to the increase in informalisation of the economy and huge increase in electronic and mobile phone based financial transactions and RTGS transactions there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and RTGS system.

The information we have so far is that in 2018 1.7 billion transactions went through as compared to 50 million four years ago.

To put this in plain language, the motivation is that the government has grown greedy and is drooling over the value that is being moved electronically. When you break down the statement above you realise that it contradicts itself. The true motivation is greed.

All governments are greedy. It’s OK because taxes are the biggest way governments can extend social services. However, the greed of governments in Africa has historically not been aligned to economic development. It’s sad that Zimbabwe seems to be walking down this road. No I am not talking about corruption.

Good greed and bad greed

Good greed says, “Hey, I want to increase my tax base. I will grow the cake so I can get more. I will incentivise business to thrive so I can get more taxes out of more activity. I will reduce the burden of taxation on entrepreneurs so they can grow to be able to support my needs.” Good greed is also called delayed gratification.

Bad greed says, “Hey, there is a problem I need money let me look around where I can squeeze. Oh, there has been 1.7 billion electronic transactions this year so far when there were 50 million such transactions for a full year four years ago, that’s it! I am gonna get a piece of that action. I’m the tax man, I’m entitled to this.” Bad greed is also called myopia, laziness and being a bully.

It is not the first time that our government has been motivated by bad greed and a lot of times it’s tech related stuff that has suffered. Not so long ago, Mobile Network Operators were perceived to be making too much money and therefore a health tax was introduced on their services. Really now? Health?

Bending over backwards (or is it forwards) for foreign ‘investors’ but not local

The thing I struggle with whenever I hear that “Zimbabwe is open for business,” is that this is always in the context of so called investors coming into Zimbabwe. The government is promising milk and honey to every non Zimbabwean who will listen and to us Zimbabweans we are promised jobs, jobs, jobs.

Has it occurred to the powers that be that some of us want to also create jobs for ourselves and our countrymen and women? Overtaxing us whilst offering golf courses in game reserves to foreign presidents just tells where the priorities lie. This is not unique to Zimbabwe, it’s an Africa problem.

The problem is there is easy money beyond our shores although this money comes at the cost of the birth right. As long as our idea of receiving investments into the economy is equal to receiving donor funds, bail outs, debt reprieves then our governments are not incentivised to listen to local business. They don’t really need local businesses to thrive for them to fill up the treasury coffers. They only need the ‘benevolent’ World Bank, IMF, Western powers, the Chinese to smile on them.

Local businesses and indeed the whole population is squeezed hard for short term expenditure and to allow the government to raise enough taxes so the government can repay loans and of course the end game is that the government can start borrowing again…

But the minister consulted business

Early on Mthuli Ncube held consultative meetings with business leaders. The problem is, the meeting was with the so called ‘captains of industry.’ What does that term even mean? These guys are captains of what industry? Holding a conference with executives at big businesses is not enough.

To be frank, the millions of jobs that need to be created in Zimbabwe are in large part going to be created by small businesses. Even in America, small businesses employ the most people. This is triple true for Zimbabwe. No offense, but as a leader of a small business, I don’t think the CEO of BAT or such huge companies can even start to understand the needs of my business. The result of that being out of touch is the introduction of tax ya Zakeyo (Zacchaeus’ tax) that was introduced yesterday after consultations with ‘captains of industry.’

For example, the level of usage of electronic means of payment tell the story that Zimbabwe is pretty much ready to boom in e-commerce. This is a totally new value chain that will be set back by the extortionery 2%.

Putting out fire with fire

Mthuli Ncube says the move to increase tax is motivated by the fact that there has been a great informalisation of the economy. That statement is self contradicting. Does the minister expect to dissuade the informal trend by discouraging electronic transactions that can be traced? The service fees from banks already make it compelling to stick to using cash and now the minister is adding to that cost.

I wrote that Zimbabwe risks progressing backwards because people were using electronic channels for transactions not because they see the light but because they are forced to. Little did I know that Ncube and Mangudya would accelerate that retrogression. I thought their job to do was to get people off bank queues, now even I am considering rejoining the bank queue which I had last done a while ago.

Anyway, I may go on ranting forever. Let me give these guys the benefit of the doubt, maybe they see what I cannot see. However, if all they see are the 1.7 billion electronic transactions performed thus far in the year then we have problems. A big chunk of those transactions will go on to become cash transaction again and that’s the last they will see of them.

We will probably keep using the electronic channels regardless

We will most likely keep using EcoCash, RTGS, ZIPIT and all the rest. Why? The central bank will keep forcing us to by limiting money supply. There won’t be enough bond notes to go around so we will bite the chin and pay Zakeyo with our sweat and blood every time we buy our daily bread at $1.10 out of our FCA RTGS account which is of course at par with our FCA Nostro account if we have such…

The Techzim Insights team produced a report on how the payments sector in Zimbabwe is structured and in there you can find out what does what in the 1.7 billion transactions. The report is selling for $9.99 and you can pay for it below:

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  1. Politician

    Well analysed this is infected going to push prices up. I think zim need “Political Policy” instead. This goes back to trust,,, No one trust the gvt.

    1. Tinashe Nyahasha

      Thank you

    2. munhumutapa XXII

      This looks like a great article but we need to interrogate a few issues around the macroeconomic fundamentals to be addressed. I begin with the relevant list of current issues on the status quo just before the announcement of the transaction tax :
      1. We have got a NEW government which is focused on turning around things towards better than the Mugabe era.
      2. We have a domestic debt of $9 billion which was accumulated during the Mugabe era and part of the new dispensation era before 2018 elections
      3. Informal sector is about 90% of the business if we use unemployment rate as a reasonable primary measure
      4. We want the country to have as much of its fundamentals in the green zone as soon as possible
      5. Capitalisation of local industries is a mega-issue towards re-industrialisation, employment creation as well as import substitution. Financial institutions simply do not have enough capacity to lend locals which in turn causes intrest rates to be high.
      6. Commitment and contribution from every adult Zimbabwean is a minimum requirement towards solving our domestic problems.

      7. It is constitutionally impossible/ unreasonable for government to stop any of its functions for purposes of only satisfying numbers such as “budget deficit” which tends to force them to borrow locally for delivery of such functions. For instance health care, education, security etc.

      Some calculations and their implications :
      If the value of daily transactions is about in the country is about $600 million per day, that means govt will collect 12 million a day which turns out to be about 4.4 billion a year. If this revenue is strictly focused on clearing domestic debt, that means two things :
      1. Domestic debt of 9 billion can be wiped out in 2 years.
      2. Because govt will be paying back into local financial institutions, it basically means that 4.4 billion will be made available to local banks for on-lending to entrepreneurs for rejuvenating failing industries as well start-ups. This will in turn do two things :
      a. Create employment
      b. Increase the number of players on the formal market who pay tax.
      c. Import substitution and increased export potential becomes a reality
      d. Intrest rates for the local borrowing will drop due to excess liquidity in the banks.


      Zimbabwe does not belong to govt. It belongs to all Zimbabweans and therefore all Zimbabweans MUST CONTRIBUTE to the push start. Right now only 10% of us are paying tax but the whole lot if us expect govt services such as police, health services, efficient Q’s kuzvitupa etc. Who do we expect is paying for that ?

      Having said that, this tax must be given a fixed period of operation in line with the govts forecast of delivering on the employment creation and debt extinguishing timing. This forces commitment to deliver on the responsible players in govt. And a cap must be put on the tax per transaction, though this may still be abused by some tricksters.

      This is where our past (9 billion debt), present (nowhere to be found) and our future (middle income by 2030) meet. The name of the bridge is “Commitment and Participation by ALL”.

      1. Tinashe Nyahasha

        Very good points there. Mind if we publish this?

  2. Anonymous

    Only its not $4.99 but 1.02*4.99 haha

    1. Tinashe Nyahasha

      Hahaha, you see how they are killing us already?

  3. Anonymous

    Im impressed by how the writer delivers his findings, I hope we have more articles of this nature in the future. All sides of the coin analysed. I enjoyed my read

    1. Tinashe Nyahasha

      Thank you very much
      Look out for Techzim Insights articles and reports. The in depth type stuff is covered in those even better than this

  4. Kelvin

    Maybe this is the part we could really use bitcoins as a nation, or something similar. They were invented for this exact cause

    1. Tinashe Nyahasha

      Maybe we should consider that Kelvin. We do need radical shifts right now

  5. taps

    are you sure captains of industry were consulted? i believe they were spoken to to avoid panic after some comments by Mthuli before his appointment…BIG DIFFERENCE!

    1. Tinashe Nyahasha

      Taps you’re on to something! We have that problem much where we have these so called consultative meetings and it’s just one person speaking

  6. Anonymous

    Its extremely contradictory, how is a country open for business yet you increase cost of doing business. All start-ups on the edge are going to fall, bigger companies will not investment as much, jobs will be lost, the informal sector will increase and crime will go up. Exactly what is He trying to achieve?

    1. Tinashe Nyahasha

      Maybe there’s something that us mere mortals just can’t see

  7. betterbest

    this is one of the best written articles published bt]y techzim in recent years. Enjoyed reading it, well written, we need more articles like this

    1. Tinashe Nyahasha

      Thanks betterbest. We will do our best to create more quality content. Be on the look out for Techzim Insights reports and articles, those are even better than this article

  8. georgegeorge

    How can you say 4 years ago we were earning 5c per transaction and there were 50 million transactions, now that it has increased to 1.7 billion transactions we better also increase the tax amount per transaction, surely by the income from that tax having increased from $2.5m to $85m at a direct cost to the population the government should be reducing the tax to 2c per transaction and thus alleviating suffering just a little while still increasing the governments income by $31.5m. How can you go and say that an increase of $31.5m is not good enough let us take more money from everybody. And then base this on the fact that it is because these people cannot find employment and are therefore not paying income tax, and for those who are employed and are paying income tax, they can just pay as well because that sounds good.

    1. Digger

      The problem with your argument and the article is the points you make are logical. However Zimbabwean government and logic do not go together.

      1. Tinashe Nyahasha

        It’s sad to admit that you are right Digger

    2. Tinashe Nyahasha

      Very good questiins there georgegeorgegeorge

  9. Dave

    Great article but allow me to disagree. As Zimbabweans we have developed a tendency toward over analyze anything and everything with such deep level analysis but not offering alternative situations. The article is on point but still I don’t see where u offer something different which you feel would work given the status quo. I feel this was the best these guys could have done given the situation at present. Was it their fault to begin with yes it entirely was but that’s a topic for another day.
    The increase in tax by the finance minister in my view is justified given the huge increase in electronic transactions and also as a measure to bring back the money being hoarded by money changers back into circulation. If it’s going to be that expensive to transact electronically then people will be forced to use cash which is no secret is being hoarded in the black market. That tax also eats into the black market rate which if the rigs/transfer value of the bond/usd thereby discouraging the transactions.
    Also another issue you conveniently did not mention was the fact that he dissolved the ZIMRA board with immediate effect. I see this a a good move, ZIMRA is the official revenue collector used by the fiscus and its no secret how corrupt ZIMRA has been over the years. Aren’t these the reforms we have been crying for?? There obviously have been revenue leakages due to corruption and I feel the minister was trying to address this.
    The FCA move I feel was also a good move given the current situation. If you recall this is very similar to how the multi currency system was introduced only difference is that all bank balances were immediately nullified meaning if you had money in the bank at that time you lost out. Having FCAs aswell as RTGS accounts running concurrently is a way to avoid the same mistakes made in the past of people losing their money. At the same time encouraging the use of the USD. Companies, schools and supermarkets have already started quoting prices in USD. If you remember in 2009 people were getting salary’s of USD$100 until reserves gradually grew. The reserves are obviously going to grow given all the deals being signed aswell as the new investment environment on offer for investors.
    Given where we are at the moment I don’t see what these guys could have done differently or better. That’s my take

    1. Tinashe Nyahasha

      Thanks for the compliment.

      I obviously disagree with you quite much.I do agree that reforms at ZIMRA are welcome. This article was not touching on the whole statement issued by the minister, we shared that. This was specifically about the new transaction tax.

      You forget that after we moved to forex and lost our Zim dollars in the banks we never moved back. The difference now is that we are now being told that the forex we have is not forex simply because our money was swapped out for random electronic numbers. You admitted that it’s the government’s fault. Yes it is. But again this article was not focused on that part of the announcement.

      I do not think introduction of the tax will achieve what you have just said. Money changers on the streets are not going away because the government has just decided to make us poorer with every transaction we make. As long as the USD balance in our accounts is way more than the actual value created there will always be a premium to exploit. Also the reasons you give for the directive are not the reasons the minister gave. The problem with that is that it is falling into the trap of justifying and rationalizing the action and not taking the actual motivation from what was said.

      The deals being signed are more about kicking the can down the road in my view.

      You talked about solutions, the minister himself should consult more broadly than he did (if he did). That’s where solutions lie otherwise if I start offering up my individual solution I will not be too different from him, will I?

  10. BTM

    Great analysis.The unfortunate thing for now is we in a mess a big one there is no other way out of this mess other than making painful decisions.
    I however also concur with the above from Dave as this was the best solution currently.My support for the tax is based on the following .N.B. i am not saying this will happen but here are my arguments:

    -Most transactions including buying and selling are now happeing online through electronic transactions.It is a fact that we have a largely untaxed informal sector.To be fair this is an unregulated and industry which should be paying tax but it is not.Do not be fulled a huge amount of transactions happen in this sector contrary to popular beliefs.Thousand of deals worth milliions are done daily in this sector.What better way to tax them than introduce the transaction tax.Painful to some but to be realistic those without the money do not transact that much.My argument is if citizens are asking govrnment to be transparent then the same should be asked of citizens . . . like they say “What is good for the goose should also be good for the gander”
    -We always compalin of government borrowing the taxation of transaction will fundamentally reduce government borrowing lets be honest the tax base for government is very lean and there is no were else in the short term they can raise for expenditure besides taxation.Borrowing to me is out of the question because we borrowing for expenditure and ultimately if we borrow its always going to come back to the taxpayer.
    -The other reality is people will always use electronic payments from a simple logic that there is not enough cash supply on the market.The money in the banks can never in the current environment all be converted to cash.Thus i do not agree with your view that this will reduce electronic transactions.Electronic transactions are not because people want to its as a result of cash shortages,
    -I understand your argument and frustration when you say “some of us want to create jobs . . .”.but i think we also need to be realistic at the same time 1.) what kind of jobs are we looking at creating 2;)are these more critical then FDI.

    I would be happy if you can offer an analysis if possible of the transaction tax compared to the other measures he put forward to avoid leakages of forex.It seems the only fixation is on the transaction tax but if we look at this including the other aspects of the monetary policy eg cut govt spending if implemented can go a long way into fixing some of the mess we in.Yes its painful and might increase prices but i always prefer a scenario were we say they should have done A,B,C.

    My initial thoughts was to criticise but after going through the whole monetary policy i think this is the best solution at the moment.We unfortunately cannot wish away bond notes overnight anyone who says otherwise is not being realistic and honest.

    bottom line we all in a mess caused by government unfortunately we have to pay the ultimate price.

    1. Tinashe Nyahasha

      Thanks for the compliment

      I understood your points clearly and I must say they are quite valid. That makes me accept Dave’s points as well.

      I am not to sure this was the only way out though BUT I do understand that taxing the informal economy is not a stroll in the park.

      On jobs, the nature of jobs is changing the world over and I see us being stuck in the past creating jobs that will be obsolete in a few years time. At the same time, large companies employ many people at once but on aggregate they employ less than smaller businesses which demand less to thrive. The problem is when we say small business or startup people largely think of hustler type businesses. I think India is a good example to look at, innovation is happening at numerous small enterprises and pushing them forward much faster than large businesses.

      My colleague discussed some of the measured proposed to curb leakages: I haven’t read the article though but it could be what you are asking for above.

      I agree that the price has to be paid. I hope the government will be transparent enough and visionary enough to claim the moral right to ask the nation to sacrifice

      1. BTM

        My poor analysis is this we have too many accountants for instance yet what we need are farmers,builders etc .For intance We have a large untapped property market sector in Zim whcih requires a lot of innovation that can result in forex being brought into the country.We have a large potential in agriculture tourism which is not fully explored eg Honde valley area.The nature of jobs is changing i agree that is why i think the government has not done enough over the years to prepare for this.I also agree with you on the smaller businesses,this is the way to go.
        I had a niece who came out with 13 points at A level i tried to sit down with her and show her were the industry is going and the jobs that are becoming obsolete unfortunately her mind was set on accounting.She was very good in maths and I tried to persuade her to do big data science and machine learning which if i am not mistaken not many universities are offering extensively in Zim.

        My question Tinashe is we both agree government has run out of ideas but can nothing be done by us to create these kind of jobs and try to get people earning money from international work (foreign jobs as a form of earning forex).Are there no gaps we can explore . . . we are stuck with this gvt for now but i am tired of waiting for a political solution it doesnt seem to be coming.

        1. Tinashe Nyahasha

          I totally agree with you on the jobs thing! We have educated folks buty not so many sjkilled folks and especially the type of skills we need.

          Oh, I understand your niece. There is very limited career guidance out there and the decisions that are being made by kids in school are based on what they see on TV and lack of exposure.

          About your question, you are very right we all have to play our part. As Techzim we are making the effort to:
          1. Share the opportunity of tech especially the internet both here on the platform and also directly with businesses of all sizes in all sectors. We are also periodically publishing reports that share some of the insights we pick up but with a bias towards information that helps businesses innovate and investors to understand the lay of the land.
          2. We are taking every opportunity to engage with government authorities on some of these issues. A lot of times we find that there are individuals within government who genuinely care but sometimes do not know where to go or what to do next. We believe it is our role as citizens to share what think and know but also to be humble about it because we are not always right.
          3. Creating communities where people can exchange ideas and experiences. We are doing this through platforms like WhatsApp and soon through meetup events.
          4. Promoting startups in any way we can and whenever we find the opportunity (we actively seek these out). We don’t have enough capacity to do this at the scale we want but we have invested in fellow startups before with seed funding to get them off the ground.
          5. Helping small businesses get online and expand their markets.
          6. Sharing some of our failures, successes and experiences as we go. We are not doing this enough though

          We are quite willing to team up with others who just want to be proactive and contribute to building a strong and enduring ecosystem

  11. joseph pedzisai

    Mtuli’s austerity measures are on the right direction ‘if and only if ‘ government expenditure is curtailed.History has it that once the government purse is heavy,unnecessary expenditure is done eg countless foreign trips etc.People want to see how this 2% will benefit the public since everybody including ‘mbuya varikumusha’ is now contributing to the fiscas.A word of advice please work on rationalization of civil service use some of this money for retrenchment packages for quick win solution.The starting point will be to carry out skills audit and then rationalize their salaries because there is too many distortions in the payment system.’Shinga Mtuli shinga’. Ratio of 70:30 in favor of political decisions should be revised in favor technocratic decision.