One of the curiously regressive fiscal policies in Zimbabwe is the imposition of taxes on electronic and mobile transactions. These taxes make the desired cashless economy more expensive and seem to defy Government progress in making it far easier to do business. It seems the time has come to remove them altogether, to make electronic transfers as cheap as possible and hasten the end of cash for transacting.
Historically, the only transactions that were taxed were check payments, and that only arose because a cheque was technically a bill of exchange and this required a revenue stamp to be recognised; these stamps were eventually printed on cheque forms rather than stuck on and became a Government revenue source, although a fairly low level one.
As cheque use started declining around the world, including Zimbabwe where it was hastened by the hyperinflation and the switch to the US dollar, some Governments latched onto taxing the electronic transactions and, at the time, this made sense since these were replacing cheques.
Now electronic transactions are replacing cash payments, and here taxes seem grossly unfair and counterproductive. Agreed, there is a charge, and a fairly high charge, to withdraw cash from a bank, when the bank has it to issue. But then there are no taxes or bank charges along the line right up to the stage where it gets packed into the back of a bank vault again.
Economists might calculate the huge costs of cash transactions, all the bookkeeping at retailers and banks, the hassle of counting, validating and physically carrying it to a bank, and the cost at the bank in the man hours required to once again count, vet and pack the notes and coins. And economists look at the cost of printing and minting notes and coins.
But for the average person buying groceries these hidden costs do not affect his cost-of-living. For them cash transactions are free, while digital transactions carry a tax and a service fee from the banking or mobile sectors.
And as a bank note wanders around an economy between being taken out of a bank and put back into a bank, each transaction is tax-free and feeless, even if the note or coin passes through 100 hands on its journey. In electronic and mobile banking every single transaction carries a tax and fee. The Reserve Bank of Zimbabwe, as electronic banking started seriously taking off for almost all ordinary people, did meet the banks and leaned on the banks, getting them to reduce their fees for each electronic transaction.
This was fair since volumes were rocketing upwards, so the fixed costs of building data-bases, buying software and linking everything were covered by far more traffic, so the cost to the bank of each transaction was falling, and so the cost to the transactors could be cut. There seems, incidentally, to be a good case now for another round of fee cuts as we move towards the final lap of a cash-free economy. But this needs to be backed by Government action to at least work towards the elimination of taxes on transactions.
A good start would be to eliminate taxes on transactions below a certain sum, something like $500. In the dim and distant past, say three years ago, a lot of these transactions were made in cash and the Treasury saw no tax revenue from them. Now they are almost all made with a swipe-card or a phone and the eager hands of the tax collectors are palm upwards waiting for their cut.
In other words this first step would simply retain the tax that the Treasury used to impose on higher value transactions, those paid by cheque. But even here there appear to be good grounds to eliminate all transaction taxes. The State does, after all, get VAT on most purchases or its stamp duties such as those on the sale of property or equities. Taking a second bite is unfair.
The advantages of a cashless economy if you are a tax collector are immense. It becomes almost impossible to hide a transaction. Regulations forcing business to fiscalise their tills and finance systems have seen VAT collections continually rising faster than economic growth, so there was some under-reporting, to put the point as pleasantly as possible.
In a largely or totally cashless economy it is likely that the advantage of having every transaction recorded will produce more tax than the tax lost on taxing each of those transactions, and those taxes will be fairer, being VAT or income taxes rather than taxing people who would rather not use cash or who cannot use cash. And VAT and income taxes create that level playing field everyone agrees is desirable and their proper collection does not impose a premium on being honest.