The President of Zimbabwe, Emmerson Mnangagwa, has implemented an increase in taxes on electronic transactions using foreign currency. This covers both ATM withdrawals and payments made with foreign currency. This move comes in response to the ongoing economic crisis in the country.
This year, the Zimbabwean dollar saw a value decline of fifty percent, making it the African region’s least successful currency.
The economic crisis in the Southern African country continues to worsen, with rising inflation and the Zimdollar continuing to lose ground, the situation is becoming increasingly dire and a call to action is highly demanded.
“Government is with immediate effect putting in place a differential taxation system for the Intermediated Money Transfer Tax. 2% would continue to apply to local currency transfers and all domestic foreign currency transfers to attract the IMTT of 4%.” Mnangagwa affirmed in a statement.
Measures To Curb The Situation
Mnangagwa has high hopes that tax difference for transactions involving foreign currencies will make payments in the local currency more efficient and cost-effective.
Additionally, the government has raised the fees that are charged when withdrawing money from an ATM. “There is a preference to withdraw foreign currency for transaction purposes, thereby undermining IMTT collections, given that cash withdrawals are not liable to IMTT,” reads an official notification.
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Other measures include the discontinuation of bank lending services and the payment of compensation to depositors who suffered financial losses as a result of Zimbabwe’s transition from a single currency based on the US Dollar to its present system of multiple currencies.
Impact of The Currency Fall on Zimbabwe
As a result of excessive inflation, businesses have been unable to generate sufficient foreign currency to satisfy their international commitments, which has had a negative influence on the quality of the services they provide.
After announcing new policy measures to deal with the rapidly rising parallel market exchange rate as well as to boost demand for the local currency, which is increasingly being rejected within the economy, President Emerson Mnangagwa has sought to put a stop to the economic decline that has been occurring since he took office in November 2017.
Even while the private sector and the opposition parties are lobbying for the Zimdollar to be phased out, his administration is emphatic that Zimbabwe would not completely dollarize.
What We Heard
Bankers have stated that the suspension of lending services will cripple local businesses that do not have the money to support operations, while Biti emphasized that “it is blatantly unlawful to ban banks from lending” when “it is their core” business.
In a market intelligence statement earlier this week, analysts working for the brokerage company Morgan & Company stated that they believe that “the new measures will likely trigger low levels of investor confidence given policy uncertainties”.
The higher taxes on foreign currency transactions will result in increased formalization of the economy at a time “foreign participants” in the economy “have not been receiving their dues” of late.
The Zimbabwe National Chamber of Commerce (ZNCC) issued the following statement in reaction to the new policies and measures implemented by Mnangagwa: “government’s slow reaction to economic chaos which triggers such confrontational approach and, in the process, results in unintended consequences, is worsening the economic turmoil”.
“There is a complete loss of faith in local currency, and economic agents are desperately getting rid of their Zimbabwean dollar the very moment they earn it,” said the ZNCC in its response paper addressed to Zimbabwe’s Finance Ministry and the Reserve Bank of Zimbabwe.