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THERE have been mixed reactions to a new tax regime announced by the Minister of Finance and Economic Development, Professor Mthuli Ncube, during his fiscal policy statement presentation in Harare on Monday with economists and industrialists decrying the decision to review tax for all electronic transactions from 5 cents per transaction to 2 cents per dollar.

However, we posit that the new tax should be given time as it could be the panacea to Government spending as Treasury will now have a new revenue stream in the form of the entire previously untaxed $7,5 billion informal sector.

This expands Government’s tax collection base and reduces the tax liability from low value transactions while allowing Treasury to shore up its coffers and live within its means.

According to a 2016 World Bank study, Zimbabwe has an estimated 5,7 million small to medium enterprises which do not pay taxes with the same segment of the economy generating about $7,5 billion which circulates outside the formal banking system.

The value of electronic transactions amounted to $65 billion in the first six months of this year, and the new tax system is designed to increase revenue to Treasury, including by capturing the informal sector.

By levying electronic money transfers, which have become the dominant transacting method due to cash shortages, Government is generating revenues without having to resort to expensive routes such as Treasury Bills and costly loans from international financial institutions.

Prof Ncube has already said Zimbabweans should brace for tough decisions that may appear cruel and insensitive in the interim but will yield the desired effect in the long term and the new tax is among one of them.

Government needs to live within its means and one of the measures it has adopted is to reduce its debts while finding ways of financing its programmes internally. This is commendable.

With Government committing to austerity measures to curb fiscal disequilibrium, which saw the budget deficit hit $2,52 billion in 2017, the new tax may significantly shore up State coffers while helping to reduce the deficit.

Former opposition legislator Mr Eddie Cross agrees.

“I believe that we can cover the shortfall in our revenues,” said Mr Cross, a former MDC legislator and Bulawayo-based economist, while submitting recommendations by Parliament’s Committee on Budget and Finance in February.

“We can provide more money for our health sector; we can fund the Parliament of Zimbabwe properly if we put a small tax on electronic transfers. If we put 5 percent, five cents in a dollar on that, it is $9 billion of new revenue.”

The total value of electronic transfers in 2017 amounted to $180 billion and this is a significant amount.

Reserve Bank of Zimbabwe Governor, Dr John Mangudya, has said levying 2 cents per dollar would be light on one’s pockets for small value transactions, hence it was progressive.

He said the previous taxation system was in a way regressive in that for every transaction, regardless of whether it was big or small, the public had to part ways with a significant amount of 5 cents.

“What I can say is that for small purchases, which are small transactions, it is an improvement because (for instance) bread costs a dollar or $1.10 and you charge 5 cents, it becomes regressive policy.

“And if you put 2 cents, which is 2 percent of every dollar you are now paying 2 cents instead of 5 cents (per transaction),” Dr Mangudya said.

Prof Ncube concurred with the Governor saying the tax system aligned with the now prevailing way of transacting in Zimbabwe, which he said reflected financial deepening of the domestic market.

The Minister likened the new tax approach for electronic payments to the individual tax system, Pay As You Earn (PAYE), which prescribes higher tax bands as one’s gross income level or pay scale increases.

“Two cents per dollar transacted, that is much more progressive than before because what it means before is that whether your transaction was $1 you would pay 5 cents whether it was $5 million you still pay 5 cents. So clearly, that is unfair and that is regressive and this is a much better system, it is progressive, it is line with expenditure in terms of value, it’s a fairer system. I do not think it is going to increase the tax levels at all.

“The current proposal is progressive, this is linked to value. For small purchases in terms of denominations, this is quite progressive because in a sense you are paying a percentage of the size of your transaction.

“It is much fairer and it includes all electronic transactions because, let’s be honest, the ATM has migrated from the wall to where you used to place your card to your mobile phone,” Prof Ncube said.

The finance chief said the previous arrangement had become ineffective and it had become important to move in the direction of technology driven innovations and prevailing ways of doing business.