Finance Minister Mthuli Ncube’s new tax will wipe out people’s income, it has emerged.
A Facebook blogger running by the pen-name: “Againstprof / Tichatonga /Nzekete / Makuyana,” says this is because it’s is 2% on gross amounts transferred regardless of whether there was purchase of goods or not, regardless of whether there was value addition or not.
This will one of the thorny questions facing Mthuli Ncube ta Chatham House in London on Monday.
Below is their analysis:
THE IMPLICATIONS OF THE 2% TAX RATE.
Againstprof / Tichatonga /Nzekete / Makuyana
Just so you know : The 2% electronic transfer tax can potentially outweigh all other Zimbabwean’s taxes (VaT , Paye or customs duties, Corporate and Capital Gains Tax ). Remember this tax is not on expenditure, its not on income, its not on production. It is levied when you transfer money it doesn’t matter if you are buying or not! I will demonstrate how this tax will wipe out all your money. I will try to explain this in simple terms so that everyone can understand.
Lets start from an Individual level. Lets say you earn a $1000 salary here is how the 2% will erode your already underpaid salary ;
1) When your employer electronically transfer your $1000 salary into your Bank account he will have to pay or withhold $20 ( $20 tax and $8 Bank charges).
2) When you move you transfer your salary from your Bank to ecocash you get another $28 deduction ( $28 tax and 8 Bank charges ).
3) When you finally pay for the goods in shops using your Ecocash phone another $26 is deducted ($10 plus $6 ecocash charges).
NB at phase number 3 it can even get worse lets say you give your wife money to pay for rent and buy groceries. When you transfer the money (for this example lets say when you transfer $500 to her Ecocash number) you get a deduction of $13 ( $10 tax plus $3 ecocash charges ) and when your wife pays for the rent and buy groceries she gets another $13 deduction ($10 plus $3 ecocash charges.)
So in total for a $1000 salary: a total of about $100 deductions are taken away by your government and you are left with only $900. This is besides the fact that your employer also paid PAYE / Employee tax of about $200 which he deducted from your salary and again paid to the same governemt. This is also besides the fact that the goods you are buying in shops have a 15% Vat that is again paid over to the same government .
To put the 2% tax numbers in aggregate nationally:
For the week ending 21 Sept. 2018, 115,293 RTGS transactions were done with a total value of $1,817.94 million.
TAX: Previously they would have collected $5,765 @5c per transaction, BUT under the new tax system, they would have collected $36,358,800 at 2% per $1.
So just in one week the government will collect $36.3 million which will be about $2Billion in one year from this 2% tax because of its cumulative nature!
So when they tell you “it’s just 2% ” tell them its not 2% on net income per person (like income tax). It’s is 2% on gross amount transferred regardless of whether there was purchase of goods or not, regardless of whether there was value addition or not!
In economic terms, at a 2% tax rate, each $100 that is in your bank will have been entirely grabbed by the gvt the moment it reaches the 50th hand. So by the time your $100 hits the account of the 50th person hurumende inenge yadya $100 from that $100. We call this “Money velocity” in Economics. Unfortunately for Zimbabwe money Velocity is very high as each individual try to shed off the RTGS monies as quickly as possible before prices increases and this is necessitated by the increasing usage of Technologies eg swipe cards , mobole phones and Kwenga ( muzaya Floridah Rumbidzai Mapeto I hope l got that spelling right). The higher the inflationary pressure and Tech savviness of a nation, the higher is the money velocity. So it is very much possible that in Zimbabwe each RTGS$100 changes hands 5 to 10 times a week especially from 1 October when threats of inflation began. Just to buttress that indeed Money Velocity is high in Zimbabwe it takes 30minutes to conclude the 3 phases of money Transfers I highlighted above . So it takes 30 minutes for money to change hands 3 times !
When prices increase and goods disappear in shops you will hear them saying “there are forces behind it ” . You cant keep increasing taxes when there is no production! Its obvious inflation will go up and companies will shed off workers!
Is this going to help the Government? In my next episode l will explain this , my lunch is almost up, l need to go now. But just as your homework before the next episode ;
Here is the scenario for you: A certain government that cheated its citizens by replacing their cattle with donkeys, collected all their cattle arguing that a Donkey is equivalent to a cattle because they can both farm and pull a scotchcart and suddenly all the citizens are now in possession of donkeys and no meat to eat! Will that government suddenly become rich if it comes back and rob those citizens of the donkey? Will it suddenly be able to import fuel because it now has 5 billion donkeys in its backyard?
Ndichiri ipapo let me pause a second Question; Prof Mthuli said Zimbabwe GDP is now $25 Billion. Just a small question; did they use the RTGS (Donkeys) to determine that figure? I hope they didn’t use Dr John Bond Panometsa Mangudya 1:1 gedye gedye rate ! We all know that we can’t use the value of a Donkey to represent the value of a cow! If that is what they did, I urge Prof Mthuli to divide that inflated Gdp by 250%
Discuss in your groups these two questions.
thank you
I remain Againstprof / Tichatonga /Nzekete / Makuyana