Retail giant OK Zimbabwe (OK Zim) said the burden of the intermediated money transfer tax (IMTT) on the business in the six months to September rose 233% to ZW $ 450 million compared to ZW $ 135 million for the previous year due to the increase in the tax cap per transaction.
The contentious tax on electronic payments which was introduced by the Minister of Finance and Economic Development, Mthuli Ncube in 2019 has been a major cost factor in the settlement of payments.
In the company’s interim statement, OK Zim Chairman Herbert Nkala said the tax increase had significantly eroded the company’s gross margins.
“Overheads increased by 60% compared to the previous year. The tax on intermediated money transfers (IMTT), personnel costs, electricity costs, rents, bank charges, cleaning costs and security costs are the cost lines that have contributed the most to growth in overheads, ”Nkala said.
“While the company implemented a series of cost containment measures, the increases in overheads were driven by exogenous factors such as the adjustment of NEC salaries and the expansion of IMTT thresholds which had an impact. negative impact on the Group’s profitability. “
Sales volumes recovered 43% from a year ago, while half-year revenue increased 42.2% to ZW $ 25.2 billion from ZW $ 17.7 billion during the comparative period.
Pre-tax profit however fell to ZW $ 798.0 million from ZW $ 2.4 billion the previous year and after-tax profit fell to ZW $ 356.1 million from ZW $ 1.5 billion. the previous year.
“The huge IMTT expense is not tax deductible and this has further increased the tax burden on the business. As a result, the Group’s effective tax rate fell from 27.4% the previous year to 39.4% recorded during the first six months of the year ”,
“We urge the tax authorities to review the structure of this tax in order to reduce its unwanted consequences on formal, tax-compliant businesses,” Nkala said.
Net financial charges increased by 299% as the Group increased its borrowings for working capital and capital expenditure.
Capital expenditure for the period amounted to ZW $ 1.0 billion, compared to ZW $ 649 million for the same period of the previous year. Most of the capital expenditure went to renovating stores.
The Group continued its store renovation program, with makeovers carried out at OK Masvingo and OK Queensdale during the period