TellZim Reporter
Treasury is losing millions of potential foreign currency remittance taxes through operations of unregistered and unregulated international money transfer agents who have penetrated the financial services sector, across the breath and length of Zimbabwe.
An investigation on this trend has established that unregulated money transfer agents are operating in all the country’s major cities and towns while others have established offices in growth points.
The investigation, done over a month by the reporter, masquerading as a client looking for convenient ways to receive money from relatives outside Zimbabwe confirmed the existence and operations of informal money transfer agents in Masvingo that move money across the borders of Zimbabwe, bypassing the formal banking system.
The companies have offices in many other areas in Zimbabwe, with treasury losing potential revenue in both direct and indirect taxes.
How it is done
While unmediated, cross-border money transfers are not a new thing, the practice is growing rapidly and is now a preferred choice of moving money by people who are discouraged by the scrutiny in some cases, and charges, imposed by formal institutions such as banks and international money transfer agents.
Public trust is also growing, because the agents are giving out money instantly.
The trend has grown significantly lately, buttressed by its accommodation of homeward remittances by undocumented clients in countries like South Africa, Mozambique, and Botswana, who are otherwise constrained by the demands of formality.
Zimbabwe National Statistics Agency (ZimStat) 2022 October figures show that there are over 700 000 Zimbabweans living in South Africa alone, with only 178 000 (25percent) having work permits.
Another ZimStat report, First Quarter 2022, states that the number of formally employed people in Zimbabwe is around 900 000, which translates to 10percent of the working-age population estimates, signifying the dwindling of the formal working space.
A lot of Zimbabweans have crossed the borders into neighbouring and far-off countries, searching for greener pastures.
The upside of this is that it has grown the forex remittances base considerably. Official Reserve Bank of Zimbabwe (RBZ) figures show that the 2022 remittances value was pegged at over USD1.5 billion, up from USD1.4 billion in 2021, but the figures only account for remittances made through the official regulated channels.
The formal banking systems have failed to accommodate undocumented Zimbabweans outside the borders as clients for remittances, and this has emboldened and expanded the informal money transfer sector based on the use of the “hawala” system.
The hawala system allows for an informal transfer of funds from one person to another without the actual movement of money, permitting anonymity as it requires no documentation.
Arthur (not real name) is a 25-year-old who regularly receives money from his brothers in South Africa through Instant Express Transfers, a Masvingo money transfer company that has offices in the CBD and Pretoria, South Africa.
He says the system is very convenient and more accommodating than the formal channels.
“My brothers are not documented in South Africa, they are border jumpers so they cannot send money home through Mukuru. The queues are not as long. I know there are inherent risks but it is balanced out when you consider convenience,” Arthur said.
The system allows for an exchange of money without passing through the banking system or financial bodies and is prohibited in many countries including the US, Pakistan, and India among others.
In Zimbabwe’s case, unregistered money transfer companies have become hawala operators, with offices at home and abroad, mostly in South Africa and Mozambique.
They offset balances between the different offices across the borders, without money passing through the official national payment system.
Laws being broken
A lot of unregistered money transfer companies are facilitating the unregulated expatriation of funds by withholding potential funds to Zimbabwe, in direct contravention of the Reserve Bank of Zimbabwe (RBZ) Act [22:15], the National Payment Systems (NPS) Act [22:43], and the Exchange Control (EC) Act [22:05]. Statutory Instrument 145 of 2017 The EC Act [22:05], which criminalize the unauthorized movement of funds to and from Zimbabwe, with such transactions categorized as “illicit”.
The statutory instrument defines “illicit transactions” as the “illegal transfer/export of foreign exchange and/or assets from Zimbabwe and/or offshore retention of foreign exchange and/or assets due to Zimbabwe, without relevant regulatory authorizations”.
Paragraph 4(7)(k) of S.I.145/2022 speaks to the operations of unregistered money transfer companies that use the hawala system by defining illegal expatriation as “…retention of funds offshore which were supposed to be received in Zimbabwe or which were not sanctioned by Exchange Control or provided for in current Exchange Control policy.”
It then seems that with more accountability and better treasury systems, the value of remittances could be much higher and contribute more to the national fiscus.
The unregistered money transfer companies have managed to grab a sizeable market share from mainstream players like Mukuru, World Remit, and Access Forex among others by offering instant transfers and quicker service times for those who are willing to take the inherent risk in no-mainstream transactions.
Lynn (not real name) is an agent for Instant Express Transfers. Her office has a desk and three chairs only, and she does all her transactions on a mobile phone which she then records in a counter book.
“The process is very simple; the system is instant. Once the sender hands over the cash to our agent in South Africa, they are given a receipt number which they then forward to you here. The same receipt number is also sent to my WhatsApp for reference then you can collect your money,” she tells this reporter.
According to Lynn, her office in Masvingo CBD is just one of Instant Express Transfers` over 20 branches around various urban centres and growth points, where they facilitate transfers to and from South Africa as well as locally.
“Our branches are many. Some around Harare, Bulawayo, Beitbridge, Jerera, Nyika, Gutu, and other places – there are 23 branches,” she said.
Several other money transfer agents in the CBD alone work the same way as Instant Express Transfers, with more being at the busy Exor cross-border bus termini on the city outskirts along the Masvingo-Beitbridge highway.
Silvia (not real name) works for one of these agents in the CBD. She reveals her company has “runner-shops” which provide the cash used to settle receipts of transferred amounts locally without the need for the cash to be sent from South Africa.
“We have shops that bring in good money locally, so we easily pay recipients here. The cash deposited in South Africa is then used there to buy “runner” orders for our shops here because things are cheaper there,” she said.
The same system is used by another agent located at Guni House in Masvingo, which has offices at Bosman bus terminus in Pretoria and in Johannesburg.
The system has become very popular to the extent that even registered cross-border transport companies now operate money transfer services, albeit without requisite licenses.
A popular logistics company runs a backroom office in the CBD which deals with money transfers only and has little to do with transport.
The unregulated hawala system that is commonly practiced by these money transfer companies prejudices the government of revenue as it circumvents both the RBZ and the ZIMRA systems.
Cross-border money transfers are not exempted from the Intermediated Money Transfer (IMMT) Tax payable to ZIMRA, determined by Statutory Instrument 92 of 2022 (S.I. 92/2022) at 4%. S.I. 92/2022 states that “…The intermediated money transfer tax chargeable in terms of section 36G of the Taxes Act shall be calculated at the rate of —…(b) zero comma zero four United States dollars or part thereof on every United States dollar transacted for each transaction on which the tax is payable.”
Silvia claims that their company handles transfers of large amounts and volumes of foreign currency for their clients.
“We can handle over US$3 000 per day as the cumulative figure, but such volumes are usually during month-end days. Our daily average is roughly 30 to 50 transactions which give between US$2 000 and US$2 500,” she said.
If a person in South Africa sends money to a relative in Zimbabwe through the formal channel, the 4percent IMMT tax is activated and becomes collectible by the government.
Commenting on the issue, finance expert and senior lecturer in the Banking and Finance Department at Great Zimbabwe University, Dr Rabson Magweva said the losses can only be calculated by the volumes of transactions.
“The net loss is 2percent transactional cost multiplied by the volumes that are being pushed,” Dr Magweva said.
He also said government losses may be difficult to quantify but they are real.
“When remittances are made through the formal banking channels, it means that the government receives IMMT tax, and effectively this means increased inflows and a wider tax base. This implies that the use of informal unregulated remittances aids tax evasion and shrinks the tax base,” said Dr Magweva.
He said some of the lost value cannot be quantified directly in monetary terms, but has long-reaching effects on the value of money in Zimbabwe.
“Our statistics become unreliable because of unrecorded transactions pushed through the informal operations of the unregistered money transfer companies, and these implications affect the formulation and implementation policies, for example, inflation or exchange rate policies, they are likely to be ineffective. Receivers of money from the informal hawala usually go directly to the black market, thus fueling the parallel market and affecting the exchange rate as well,” he said.
South African-based economist and researcher, Onias Mugowo said that these unregulated agents violate both local and international laws.
“When the cross-border transactions contravene both national and international laws, they can be considered to be either illicit financial flows or money laundering, depending on their volume and purpose,” Mugowo said.
The unregistered transfer agents are also indirectly prejudicing the government of collectible taxes as their operations reduce the market share and profits of mainstream companies.
By law, all companies must be registered to operate in Zimbabwe so they can pay appropriate registration, licensing fees, and requisite security deposits with the RBZ as contained in the operational guidelines for Authorised Dealers with Limited Authority (ADLAs) – money transfer agencies and Bureaux de change (2021).
RBZ governor Dr John Mangudya did not respond to calls while the RBZ public relations department did not respond despite asking for questions in writing.
Follow-up phone calls were made to the PR department, and they indicated that they were waiting for response and clearance from the Financial Services Unit (FSU) and the Exchange Control Unit.
