Top lawyers say 2% tax is illegal

Obert Gutu

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“Ordinarily, sections of an Act of Parliament cannot be repealed by a Statutory Instrument.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 The Finance Act can only be lawfully repealed through the relevant parliamentary processes and definitely not via a Statutory Instrument,” said Obert Gutu, a Harare lawyer.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.