Retail giant, OK Zimbabwe (OK Zim) says the Intermediated Money Transfer Tax (IMTT )burden on the business during the six months to September grew by 233 percent to ZW$ 450 million from ZW$ 135 million for prior year as a result of the increase in tax ceiling per transaction.
The contentious electronic payments tax that was introduced by Finance and Economic Development Minister, Mthuli Ncube in 2019 has been a major cost pusher in settlement of payments.
In the company’s interim statement, OK Zim Chairman Herbert Nkala said the increase in tax significantly eroded the business’ gross margins.
“Overheads grew by 60% over prior year. Intermediated money transfer tax (IMTT), staff costs, electricity charges, rentals, bank charges, cleaning expenses and security charges are the cost lines that contributed most significantly to overheads growth,” said Nkala.
‘Whilst the business implemented a raft of cost containment measures, the overhead increases were driven by exogenous factors such as NEC wage adjustment and expansion of IMTT thresholds which adversely impacted the Group’s profitability.”
Sales volumes recovered by 43 percent over prior year while revenue for the half year grew by 42.2 percent to ZW$ 25.2 billion from ZW$ 17.7 billion in the comparative period.
Profit before tax however dropped to ZW$ 798.0 million from ZW$ 2.4 billion prior year and profit after tax plummeted to ZW$ 356.1 million from ZW$ 1.5 billion prior year.
“The huge IMTT expense is not tax deductible and this further compounded the tax burden on the business. Resultantly, the effective tax rate for the Group increased from 27.4% in the prior year to 39.4% recorded in the first six months of the financial year,”
“We urge the fiscal authorities to review the structure of this tax so as to reduce its undesired consequences on tax compliant formal businesses,” said Nkala.
Net finance charges increased by 299 percent as the Group increased borrowings for working capital and capital expenditure purposes.
Capital expenditure for the period was ZW$ 1.0 billion, up from ZW$ 649 million for the same period in the prior year. Most of the capital expenditure was on store refurbishments.
The Group continued with its store refurbishment programme, with makeovers completed at OK Masvingo and OK Queensdale during the period