In Tanzania, the abolishment of fees associated with card payments aims to stimulate digital transactions, while Mthuli's 2% tax in Zimbabwe inadvertently hinders such growth.
In the realm of digital payments, two East African nations, Zimbabwe and Tanzania, have taken contrasting paths.
Once upon a time, in 2017, Zimbabwe boasted a remarkable 70% usage of electronic transactions for payments. However, this trend has since reversed due to the costs associated with digital transactions. The Zimbabwean government's imposition of the 2% Integrated Money Transfer Tax (IMTT) on digital transactions led many to revert to cash, a move that has left no one in Zimbabwe preferring electronic payments if it can be helped.
In stark contrast, the Tanzanian government has taken steps to encourage digital transactions, eliminating charges on card payments to promote a cash-lite economy. This initiative, led by the Bank of Tanzania, applies to debit, credit, and prepaid card payments at point-of-sale (POS) machines, with penalties for merchants who violate the order. This move aligns with Tanzania's economic growth, driven by key sectors like trade and financial services, and bolstered by increased smartphone ownership and financial inclusion. As a result, digital payments in Tanzania are growing rapidly, with 48.4% of the population using digital platforms.
The economic consequences of introducing and then scrapping charges on digital payments in Zimbabwe can be outlined. The initial charges likely led to reduced usage of digital payment platforms, increased transaction costs, potential slowdown in financial inclusion, and a possible negative effect on economic activity. Conversely, scrapping charges on digital payments likely resulted in increased adoption and usage of digital payment platforms, enhanced financial inclusion, boost to formalization of the economy and tax transparency, and potential stimulus to economic activity.
Zimbabwe's economy, although growing steadily, has faced challenges in this digital transformation. The capacity for digital financial growth to contribute to Zimbabwe's trajectory is evident, with the economy growing from about $27 billion in 2021 to over $44 billion in 2024. Inflation data from Zimbabwe suggests the importance of stable and affordable payment systems to manage economic stability.
While direct studies on this specific policy move were not found, UNCTAD recognizes the importance of digital economy initiatives in countries like Zimbabwe for inclusive development. The future of digital payments in Zimbabwe remains uncertain, but the contrast with Tanzania underscores the potential benefits of a more favourable policy approach.
Sources:
- Zimbabwe's digital economy: A dream unfulfilled
- Tanzania Eliminates Card Transaction Charges to Boost Digital Payments
- Zimbabwe's GDP from 2021 to 2024 (in billion US dollars)
- Digital economy and development in Zimbabwe
- Zimbabwe inflation rate 2025
In the context of Zimbabwe's digital economy, the imposition of the Integrated Money Transfer Tax (IMTT) on digital transactions could have negatively impacted financial inclusion and economic activity, given the resulting preference for cash over electronic payments. On the other hand, Tanzania's elimination of charges on digital transactions has fostered a cash-lite economy and growth in digital payments, backed by its focus on sectors like business and finance, and increasing smartphone ownership.
