Policy Contradictions and Policy Dilemma: A Case of Intermediary Money Transfer Tax (IMTT) on Business Performance in the Engineering Sector in Zimbabwe

Abstract

The use of tax policies to address macro-economic challenges has often led to serious other macro-economic challenges for developing countries. The purpose of this paper is to illustrate macro-economic policy dilemmas that affect developing countries when they implement tax policies to address macroeconomic challenges. The objective of the study was to examine how the 2% Intermediary Money Transfer Tax (MTT) introduced to raise financial resources to grow the economy affected performance of companies in the engineering sector. The study was guided by the pragmatism research philosophy, used explanatory research design and a mixed research approach. Data was collected from companies in the metal fabrication and machine/equipment sub-sectors of the engineering sector. A total of 68 companies were used. The paper shows that a tax policy adopted by Zimbabwe to raise revenues for supporting economic growth and addressing several economic challenges such as poverty, unemployment and negative economic growth generated other macro-economic challenges such as declining performance of companies in the Engineering sector. Results from the study showed that 2% IMTT had a negative an influence on business performance of companies in the engineering sector. The tax reduced profit margins, sales, and competitiveness. Conclusions from the study were that adoption of tax policies by governments, to achieve increased revenue and growth of the economy may, in the process, negatively affect some sectors of the economy. It was therefore recommended that the government analyse potential contradictions and dilemmas before implementing tax policies. Further studies of the influence of IMTT on other sectors like the small scale and informal sectors that are usually hit the hardest by government policies is recommended.