An analysis of the impact of intermediated money transfer tax (IMTT) on financial performance of manufacturing firms operating in Harare

Abstract

The main purpose of the study was to examine the extent of the effects of IMTT tax on business financial performance as perceived by manufacturing firms in Harare, Zimbabwe. The study considered four measures of financial performance mainly; profitability, cost of sales, liquidity and asset return. The main theories underpinning the study comprised of the Allingham and Sandmo Theory (AS Theory), the Ability-To-Pay Theory and the Tax Morale Theory. The empirical literature review included examining the effects of the imposition of digital tax by France on US tech multinational companies who are into cyberspace like Facebook, Alphabet Inc.’s Google. In developing countries, the study tracked cases of special taxes in; The Gambia (Excise on tobacco products), Maldives (Tourism sector goods and services tax, General goods and services tax and Business profit tax) and Uganda (VAT).An explanatory research design was adopted as the researcher sought to establish the relationship between IMTT as the independent variable and financial performance as the dependent variable. On research paradigm the study adopted positivist approach and a survey research strategy. The study population comprised of all manufacturing firms within Harare both quoted and unquoted. Using the Slovin’s sample size calculator the optimal sample size was found to be 312 firms. Stratified random sampling procedure was implemented to choose sampling elements. The study used primary source of data through the use of self-administered questionnaire. The analytical model that was used was in the form of a linear regression model. The results of the study revealed that IMTT negatively impact financial performance. The findings further revealed negative impact on firm profitability, liquidity and return on assets. From the study findings, it was also deduced that the IMTT has resulted in high cost of production for the manufacturing companies. The study therefore recommended that political commitment and a buy-in stakeholder as a necessary condition for successful tax reform.