The impact of Zimbabwe’s Intermediated Money Transfer Tax (IMTT) on electronic transactions and financial inclusion: a Difference-in-Differences approach

The research uses a Difference-in-Differences approach to examine the impact of Zimbabwe’s Intermediated Money Transfer Tax (IMTT), a 2% tax on electronic money transfers introduced through Statutory Instrument 205 of 2018 and fully operational from Q1 2023. Using Reserve Bank of Zimbabwe quarterly data (2013–2024), supplemented by sectoral and macroeconomic indicators, the study compares pre- and post-policy periods against a control series to identify causal effects. Findings show a significant decline in electronic transaction volumes (ZTV), indicating that the tax discourages e-payment usage. However, bank account ownership (BA) and the financial inclusion index (FI) increased. This paradox reflects three concurrent processes: (i) transaction consolidation, where users reduce transaction frequency and increase transaction size to minimise tax costs; (ii) formalisation, whereby IMTT encourages account opening; and (iii) inactive account ownership. Sectoral analysis further reveals uneven effects, with distribution, retail, and telecommunications most affected. The findings suggest that although IMTT has generated revenue and expanded formal banking participation, it has reduced smaller and frequent transactions, weakening the usage dimension of financial inclusion. The study recommends more balanced fiscal instruments that protect revenue generation without undermining digital transactions and broader financial inclusion.

This study examines the causal effects of Zimbabwe's Intermediated Money Transfer Tax (IMTT), a 2% levy on electronic financial transactions, on digital payment behaviour and financial inclusion, using a rigorous Difference-in-Differences econometric approach with quarterly data spanning 2013 to 2024. As governments across Africa increasingly turn to digital transaction taxes to broaden revenue bases, understanding their unintended consequences is critical. The findings reveal a significant paradox: while the IMTT expanded formal bank account ownership and generated government revenue, it simultaneously suppressed the volume of electronic transactions, particularly low-value and high-frequency payments in retail, distribution, and telecommunications sectors. This tension between fiscal sustainability and inclusive digital finance has direct policy relevance for Zimbabwe and comparable developing economies. The study's methodological contribution, applying synthetic control and sectoral decomposition alongside DiD, provides a replicable framework for evaluating digital taxation policies across Sub-Saharan Africa and beyond.