Top lawyers say 2% tax is illegal as Zim inflation hits 155%

HARARE - Government has triggered a storm after forging ahead to effect a draconian two percent tax on electronic transactions through a process legal experts say is unlawful.

This comes as financial institutions, the Zimbabwe Revenue Authority and telecommunication companies began extending the collection of the tax across all electronic transactions yesterday.

Legal observers told the Daily News on Sunday yesterday the country’s legal system does not allow for the repeal of sections of an Act of Parliament without going through the National Assembly.

“Ordinarily, sections of an Act of Parliament cannot be repealed by a Statutory Instrument. A Statutory Instrument is a subsidiary piece of legislation that has to be anchored on a valid Act of Parliament. The Finance Act can only be lawfully repealed through the relevant parliamentary processes and definitely not via a Statutory Instrument,” said Obert Gutu, a Harare lawyer.

Introduced by Finance minister Mthuli Ncube last week, the two cents per dollar tax will not apply on transactions which are $10 or less.

There is a cap of $10 000 on the amount of tax to be paid, which means that transfers above $500 000 will attract a flat tax of $10 000.

Government gazetted the tax on Friday, resulting in retailers and other service providers reflecting the increase in their pricing.

Labour unions have already crossed swords with government over the tax, amid indications by Steve Hanke of the Johns Hopkins University in the United States that Zimbabwe’s inflation breached the 155,8 percent mark as of Friday.

The inflation rate is derived from the Old Mutual Implied Rate.

Top Harare lawyer Chris Mhike told the Daily News on Sunday yesterday that government’s record in respecting the rule of law, recognising the devastating effect of noxious statutes, and upholding the Constitution continues to deteriorate month after month.

Mhike said Statutory Instrument (SI) 205 of 2018 entrenches Ncube’s embedment with the ruling elite’s lack of understanding of the law, and their lack of care for the masses.

“Government’s disregard for procedural law started with minister Ncube’s attempt on 1 October 2018 to give immediate effect to the unreasonably punitive two percent intermediated money transfer tax, through a ministerial statement,” he said.

“After severe criticism and realisation that his words alone with the backing of the law could not yield government’s strange desires, the minister went on to cause the publication of SI 205 of 2018 on 12 October 2018. That instrument is still fatally defective”.

Mhike said the SI was made in terms of Section 3 of the Finance Act, completely ignoring the letter and spirit of Section 3 (3) of the Finance Act, which compels the Finance minister to present to Parliament for deliberation, a Bill carrying proposed changes to financial laws.

Under Section 119 of the Constitution, all institutions and agencies of the State and government at every level are accountable to Parliament.

“A decision as far-reaching and as material to the content of the finance as the two percent tax on transaction must; naturally, logically and legally speaking, first be debated and passed by Parliament before being made into law. Through this new tax, government seeks to take away citizens’ vested rights, in violation of Section 3 of the Constitution that is the founding values and principles upon which Zimbabwe is founded.

“It is difficult to understand why a government that should be competent and compassionate towards its citizens, would stubbornly press on with a measure whose effects have been so historically devastating on the lives of ordinary folks. If this is part of the new dispensation reality, then it might well be time for yet another new,” said Mhike.

David Coltart, a lawyer, said the published Statutory Instrument giving effect to the tax was an illegal instrument.

“Just when I thought sanity may be returning to the ministry of Finance, minister Ncube publishes an illegal Statutory Instrument. In it he seeks to repeal section 22G of the Finance Act which he has no power to do. A minister may issue Statutory Instrument but may never repeal Act of Parliament,” Coltart said.

“Let us be clear — section three of the Finance Act gives the minister of Finance the right to change tax rates by Statutory Instrument authorised by laws already in the Finance Act, but it does not give him powers to repeal the Act or sections of it. That is unlawful.”

Constitutional law expert Alex Magaisa said Mthuli’s regulations were not in compliance with the Constitution.

“Section 134(a) of the Constitution prohibits the delegation of Parliament’s power to make primary law. To the extent that Section 3 of the Finance Act (under which the Finance minister has acted) allows him to exercise primary law-making powers, it is unconstitutional,” he wrote on his twitter account.

“The minister’s regulations are not in compliance with the Constitution. However, at present, it may be argued that the presumption of constitutionality of existing legislation saves them. This means someone must challenge the constitutionality of the regulations.

“Government must know that it doesn’t have the power it purports to be exercising. The Constitution is clear: Subsidiary legislation cannot amend primary legislation. But they go ahead anyway. Using a power they don’t have. But still claim to be upholding the rule of law,” he added.

Economist John Robertson said the tax will cause more private sector panic than inspire confidence.

“It’s going to cause a reduction in purchasing power and therefore a reduction in government receipts especially value added tax because people will have less money to spend and that will mean they buy less goods which could also force companies to retrench workers or to close down which would cause a loss in pay-as-you-earn and company profit taxes,” said Robertson.

“So, the problem is that we are already heavily taxed and that an increase in one tax causes a reduction of tax receipts from other taxes,” he added.

Confederation of Zimbabwe Retailers president Denford Mutashu said the major advantage to be derived from the tax was that it is inclusive of the informal sector,
which has grown exponentially since the collapse of the formal sector.

Since Ncube’s announcement a week ago, the tax had not taken effect because it was still to be gazetted.

Notwithstanding, there was panic buying and price spikes on food, fuel and other necessities, with the government announcing price controls to try and curb the outcry.

Government has said it will enforce laws against hoarding supplies to inflate prices, or any price gouging, while denying any fuel shortage despite long lines at filling stations.

Several unions are threatening to launch countrywide demonstrations, with the police infuriating the main Zimbabwe Congress of Trade Unions after outlawing its protests that had been planned for Thursday last week.


Comments (19)

The treasury has to find money elsewhere , from a population that is self employéd and informal. There should be no cap tho , all etransactions must be taxed . The reduction in gov spending also means the reduction in the size of government. Can we afford the parliament ? , those folk can be regional based , kunevanhu vavo nema councilors to increase efficiency.

Zuda Mahewu - 14 October 2018

Law sense or financial sense ?. 60% of the working population has not paid any tax in the last 15yrs. Muneraki....dzimwe nyika kana mahure anobhadhara tax. Reduce corporation tax for manufacturers that æxport to 1% to swing the pendulum.

Juru - 14 October 2018

Taura hako Juru.Vanhu vepi wanongotsoropodza zvese zvaitwa nehurumende yedu!!

Humpty Good - 14 October 2018

We must be a responsible people. Pay the 16Bn dollar debt in 12yrs , reduce unemployment to less than 10% , grow our exports to $50Bn in the next 10 -15yrs. All this we can do. We cant be the sick man of Southern Africa all the time. Tinofanira kuita mushandira pamwe. Zve ma pati pasi tsvee....munhu wese pandima.

eGov - 14 October 2018

Why isn't the top priority to reduce govt spending IMMEDIATELY? Why are taxes immediate yet wastage by govt is treated as if it is gamatox or DDT? ED must cut down the number of gunners around him, its a waste of money. Such things if not addressed, invite skepticism from the overtaxed citizens. #eGov & Humpty some of us have been employed all along and paid our taxes, your govt must lead by cutting back now. Talk to the rural folk, those are the ones who live (and vote) for freebies.

Sagitarr - 14 October 2018

0,02 cents tax that is the brilliant idea way to come out the economy stagnant that we experienced for years. Now More turf measures are needed for Gvt to spend less and collect more revenues for economy development. Let us be positive than negative zanu pf or mdc alliance you all Zimbabweans. We are now wiser than 1980 with more PHDS, Masters,and more universities.Let us join Strive M to take the opportunities at this difficulty time. let us set our minds to be a job creators than to be a worker.We are wiser than before let us work together to solve our economic failures to the better of you and me

Musha - 14 October 2018

After stealing votes then moti ngatibatane tisiye zvemapato tishandire pamwe that's bullshit if this uniting together to build our country was that important than political parties he was supposed to do that last November after coup but he wanted to be legitimized from the shadow of coup now you being taxed your salary then taxed again when buying

Innocent - 14 October 2018

with 80% unemployment that is ,we are in economic failure, economic war like war zone area which need strategies to arrest it through you and me not zanu or mdc. Anger it does not pay but create enemies and loathing . some countries went through the stage that we are in the moment that come out the wood more stronger so we can do just keep on positive to anything that you doing at the moment brothers and sisters .Ths our only Zimbabwe for you ,me and next generation.

Hope - 14 October 2018

Sadly, those who need government most are the ones who seem to be the loudest at protesting. There is no government that can provide services without collecting tax. One of Mugabe's most tragic sins following the farm invasions was to essentially destroy the formal sector in Zim (and the structured tax system that went along with it). This is why it has been an inexorable descent ever since - whether it's in the funding of education, healthcare, infrastructure, policing etc. We need a modern state - where everyone pays tax. This insane expectation that donors from elsewhere should be funding programs in Zim (using funds collected from foreign taxpayers???) is deplorable. Whichever way you look at it, there will be no progress in Zim without initial pain - especially after close to two decades of rot!

Buns Tonobvinex - 14 October 2018

Economist John Robertson claimed "...we are already heavily taxed...". We who? The formal sector? Every report I've read in the last while claimed that unemployment in Zim was 80 -90%? So, who are these heavily taxed people? The business sector? The Minister of Finance has indicated that upwards of 4000 Zim companies are not registered with the Finance for tax purposes. Call it mass tax evasion!

Buns Tonobvina - 14 October 2018

To the Minister of Finance - please don't relent on this measure. It is a fact that nobody wants to pay more tax (in Zim or anywhere else). But taxation is a necessary evil for any modern state. It is the only way government can provide services to its citizenry. There will be many detractors (this Daily news report and the various people it quotes, for instance). But, ethical government comes with a responsibility to educate the masses. This measure you have taken is the first step in correcting course in Zim. So, please keep it at it - 'a luta continua, vitoria e certa'.

Buns Tonobvinex - 14 October 2018

Famba Mthuli Famba! Zveconstitutionalisms is all bookish tozviona time time!

willo - 14 October 2018

I strongly condemn this tax. its totally insane what kind of minister are. who is busy stealing from the already suffering citizens. Why is it so. Why why.

nesta - 14 October 2018

iyi ndo mhata manje inonzi ya Minister busy stealing kuvanhu

Richard - 14 October 2018

I am a rural folk sir , Sagitar , I employ 23 people on my land , yes the land that I bought not grabbed , and the minimum earner bags home $550/mo plus free accommodation with green power , food and schule costs for the smallies. I do pay tax and I do part contribute private pensions for every employee. Hameno kenyu. Gore rinoura our rural industry will take more of our folk on board.

Yok - 15 October 2018

I will proffer 2 solutions to the current crisis; the first one will be for government to drastically reduce its debt. Along with reducing the expenditure they must give explanations as to how it shot from 2.7 billion in November last year to 9 billion to date. The second one will be to give prime farming land to those with traceble farming record genuine farmers. Along with that land must be title deeds so the farmer can approach a bank of their choice even internationally for financing. Government will give those farmers targets on produce. The same can be done with mining. Thereafter - 6 months timeline - introduce the intermediary tax which must solely to finance social activities health and education.

Sinyo - 15 October 2018

I don't think the land has anything to do with the problems we face. I was born and bred on a farm myself , what I know is , most of the farms were used for tobacco which we still do but producing more. We are not exporting cattle as much , a positive thing , less carbon footprint. Zvirikunetsa i muzansi , havadi kuti vatore ivhu. munotaurisa hamuna regional strategy ma zimbo , chabuda hapana . Varungu havana chinhu ava. The liquidity crisis can be addressed easily , a reduction in government is the first step , 5 ministers are enough and small provincial parliaments.

Mav - 15 October 2018

These mdc lawyers are a real bunch of fools. How do they think our country can pullout of the problems we in without such measures? They failed to advise chamisa not to waste time filing unjustifiable complaints now they want to sink the country through their ill legal advises. They failed to advise mdca to respect the Judges and their ruling on the election petition but want to give their advises where they are not wanted

shunguhadziurayi - 15 October 2018

ayewa. malawyers makabatwa batwa ndimi vamwe. mthuli is an economist aitoziva kukupoya nebag cash and transfers. apa makabatwawo apa. Pafulcrum chaipo. m happy he is professor of economics not of law. itai zvekulaw kwenyu give mwana space yake to manouvre

oscar madzivanyika - 16 October 2018

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