Finance Minister Proposes Trade-Off: Cut IMTT, Raise VAT to Protect Revenue Base

Finance Minister Mthuli Ncube has proposed reducing Zimbabwe’s IMTT while slightly raising VAT to maintain revenue stability (image source)

BULAWAYO — Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube signalled a potential fiscal trade-off at a pre-budget seminar this week, proposing a calibrated reduction in the Intermediated Money Transfer Tax (IMTT) offset by a marginal increase in Value Added Tax (VAT) as the government weighs reform options to maintain revenue stability while responding to public pressure to ease transaction levies.

Addressing delegates, Prof Ncube acknowledged mounting calls from business groups and some political quarters to abolish or sharply reduce the IMTT — a levy on electronic transactions introduced to widen the revenue base in recent years. He argued that while the IMTT is unpopular, it has also become a dependable revenue stream funding priority programmes. Removing it without a replacement, he warned, would create a fiscal hole that needs careful plugging.

As a pragmatic compromise, Ncube suggested a modest reduction in the IMTT rate — for example, a half-percentage point cut — coupled with a calibrated VAT adjustment designed to preserve aggregate revenue while softening immediate burdens on digital transactions.

Economists and business leaders reacted with caution. Supporters of IMTT reform welcomed any move to lower the transaction tax, saying it would reduce the cost of doing business and promote formalisation of economic activity. Critics, however, argued that substituting IMTT revenue with higher consumption tax risks regressive effects, hitting lower-income households proportionally more through VAT increases unless compensatory measures such as targeted exemptions or social transfers are introduced.

Observers said the distributional impact would hinge on the exact VAT rate change, the tax base covered, and whether essential goods remain zero-rated or exempted under any new regime. Fiscal experts emphasised the need for transparent modelling and stakeholder engagement before final decisions. They recommended scenario analyses showing the revenue and distributional implications of various IMTT cuts and VAT adjustments and urged the ministry to outline transitional measures to protect vulnerable households.

Business groups called for phased implementation and clear timelines to allow firms to adjust pricing, accounting and compliance systems. Parliamentarians at the seminar pressed for clarity on how any revenue substitution would be ring-fenced for public investment priorities rather than absorbed by recurrent spending.

Ncube responded that prioritisation would be central to the ministry’s approach and that robust monitoring and reporting would accompany any tax mix change to ensure funds support infrastructure, social services, and key growth initiatives.

As the pre-budget consultation cycle continues, the government faces the delicate task of reconciling revenue needs with social equity. The proposed IMTT-for-VAT trade-off reframes the debate, raising technical and political questions about tax incidence, administrative feasibility, and the sequencing of reforms to shield the poorest while stabilising the fiscal outlook.