The proposal to make the Intermediated Money Transfer Tax (IMTT) deductible for Corporate Income Tax (CIT) purposes is a critical policy discussion that directly affects the cost of doing business in Zimbabwe, particularly for the formal sector. The background information indicates that the current stance in Zimbabwe is that the IMTT is not an allowable deduction for Income Tax purposes, as Section 16(1)(d) of the Income Tax Act prohibits the deduction of a tax upon the income of a taxpayer.
Here is our assessment of the impact if the Minister proposes and implements the Deductibility of IMTT for income tax purposes:
⚖️ Assessment: Deductibility of IMTT for Income Tax
1. The Measure: Shift in Tax Treatment
| Feature | Current Treatment (Prohibited Deduction) | Proposed Treatment (Allowable Deduction) |
| Status | Tax on transactions, deemed non-deductible tax on income. | Expenditure incurred in the production of income. |
| Tax Base | IMTT paid is not subtracted from gross income. | IMTT paid is subtracted from gross income. |
| Corporate Income Tax (CIT) | CIT is calculated on a higher profit base. | CIT is calculated on a lower profit base. |
| Business Cost | IMTT is a final, unrecoverable cost of transacting. | IMTT is partially offset by a CIT saving (i.e., tax relief). |
2. Decision Impact: Benefits for Business
If the deductibility is allowed, it would fundamentally improve the financial position and compliance incentives for formal businesses.
A. Reduction in the Effective Tax Burden
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Tax Relief: IMTT is currently a cost that is “taxed on top of tax.” By making it deductible, the government is effectively offering tax relief.
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Calculation: For every $\$100$ paid in IMTT, a company with a $25\%$ corporate tax rate would save $\$25$ in CIT. The net cost of the IMTT to the company is reduced from $\$100$ to $\$75$.
Example: A company pays $1,000,000$ in IMTT during the year.
Current: No deduction. Profit is $10 M. CIT is $2.5 M.
Proposed: Deduction of $\$1 \text{M}$. Profit is reduced to $9 M. CIT is $2.25 M.
Impact: The company saves $250,000 in corporate tax.
B. Reduction in Double Taxation
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Addressing a Key Grievance: Formal businesses, especially those with high transaction volumes, have long complained that IMTT represents double taxation: income is taxed (CIT/PAYE), and the act of transferring that income is also taxed (IMTT).
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Fairness: Allowing the deduction acknowledges IMTT as a genuine operating cost required to sustain trade, thereby bringing more fairness to the tax regime for formal businesses.
C. Incentivizing Digital & Formal Transactions
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Cost of Transacting: IMTT increases the cost of using formal banking and digital platforms. Making it deductible slightly reduces this friction.
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Formalization: If the formal sector sees a reduction in its effective tax cost, it reduces the incentive for businesses to retreat into the cash economy or informal sector to avoid the IMTT cost. This could support the government’s long-term goal of tax base widening and digital transaction monitoring.
3. Decision Impact: Cost to the Fiscus (Government Revenue)
While the measure is positive for business, it comes at a direct cost to government revenue.
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Erosion of the CIT Base: The deduction lowers the net taxable income for numerous companies, reducing the total amount of corporate income tax collected by ZIMRA.
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Trade-Off: The Minister must weigh the loss in CIT revenue against the potential gain from increased economic activity (due to lower costs) and improved compliance. The initial loss in revenue from the CIT base may be significant, especially given the high cumulative IMTT paid by large corporates.
4. Risk: Complexity
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Tracing and Documentation: For ZIMRA to administer this effectively, companies will need to accurately track and reconcile every IMTT payment made throughout the year. The tax system will require robust documentation to prove that the claimed IMTT was genuinely paid and not double-claimed.
Conclusion
The proposal to allow the deductibility of IMTT for Income Tax purposes would be widely welcomed by the Zimbabwean business community, particularly the Confederation of Zimbabwe Industries (CZI) and the Bankers Association.
It represents a policy shift away from prioritizing maximum immediate revenue (collected through the non-deductible IMTT) toward supporting the profitability and competitiveness of the formal sector. The immediate impact is a lower effective tax burden and a strong signal of government commitment to mitigating the high cost of transacting digitally.
