FORMER Finance minister Tendai Biti has painted a gloomy picture of the economic situation in 2024, saying the exchange rate will continue on a freefall, while inflation will spike due to currency volatility and a 14-fold budget increase accompanied by extortionate taxes.
Biti says the unprecedented increase of the budget means struggling companies, the informal sector and individuals — already labouring under extortionate taxes — have to cough up more.
“The starting point is how the budget has been increased astronomically from ZW$4.3 trillion last year, which is a massive increase. So this means taxpayers will have to pay much more to match government’s expenditure projections.
“A budget is a plan of expenditure based on revenues and expenses. In other words, it is an estimate of how much money you will get and spend over a certain period of time, such as a month or year. It can be for an individual, family, company or country. In this, we are talking about a country called Zimbabwe, that is its budget funded from revenues from taxes, royalties, fees, charges, and various inflows such as loans and donations.”
Ncube last November presented a 2024 budget amounting to ZW$58.2 trillion (now less than US$4 billion), from ZW$4.3 trillion (US$333 million) last year.
It will mostly be funded by tax revenue, which is forecast to more than double to ZW$51.2 trillion (less than US$4bn).
Total expenditure and net lending for 2024 are estimated at ZW$58.2 trillion inclusive of capital expenditure which is estimated at ZW$12.4 trillion.
The budget will be financed mainly from revenue resources (ZW$53.9 trillion) collected through taxes, royalties, and fees from different sources.
The government also expects to receive support from the private sector through public-private partnerships and other avenues.
Further, in 2023 government programmes benefitted from development partner support across various sectors of the economy.
In 2024, it expects a total of US$628 million in grants and loans from development partners to support various programmes and projects.
There was a raft of new taxes introduced such as value-added tax, corporate tax, tollgates, fuel, sugar, motor insurance and lithium export tax wealth, among many others.
Biti said: “There were many taxes introduced. To start with, tax-free threshold increased to ZW$750 000 per month or ZW$9 000 000 per annum. But tax-free bonus threshold increased from ZW$500 000 to ZW$7 500 000, with effect from 1 November 2023.
“However, capital gains tax amounts received by or accruing to commercial farmers whose farms were acquired under the Land Reform Programme exempted from capital gains tax.
“Corporate income tax rate of restored to pre-Covid-19 rate of 25%, and remains favourable compared to rates obtaining in the Sadc region.
“There was widening of Zimdollar PAYE tables to ZW$9 000 000 for the year; increase of the tax-free Zimdollar bonus threshold from ZW$500 000 to ZW$7 500 000 with effect from 1 November 2023. There was also an increase of the corporate income tax rate from 24% to 25%; an increase in the deferment of VAT on capital goods to three years and introduction of penalties on any default and introduction of a special 20% capital gains tax on the disposal/transfer of mining title/interest post 1 January 2024, where such and title/interest was acquired in the previous 10 years.
“The minister came up with adjustments to the definition of transactions on which IMTT is chargeable. The withholding tax exemption threshold for delivery of grain to GMB is set at US$5 000. He introduced a schedule to the Income Tax Act for the Statutory Motor Insurance Levy and inserted a section in both Finance Act and Exchange Control Act on outbound foreign currency charge. Export tax on unbeneficiated lithium, uncut and cut dimensional stone went up from 5% to 6%. The 50% of the 1% increase will be utilised to provide local communities with basic services, improve conditions and rehabilitation of the mining area.”
Biti said Ncube’s budget was retrogressive and even targeted the informal sector. Only licenced and tax-compliant traders will be able to procure goods from manufacturers and wholesalers.
VAT registration numbers and valid tax clearance certificates are required to be presented on purchase.
The VAT registration threshold is proposed to be reduced to US$25 000 or the equivalent in local currency, with the failure to register resulting in penalties.
Due to tax incentives offered to multinationals, the effective tax rate of the local company goes down to less than 15%. Accordingly, the corporate income tax rate has been increased from 24% to 25%.
The statutory reserve levy on fuel shall be calculated at the rate of US$0.05 per litre of petroleum product and at the rate of US$0.03 per litre of diesel.
Statutory Motor Insurance Levy shall be calculated at the rate of US$0.20 on each dollar of the total value of all premiums paid (pursuant to statutory motor insurance policies) to any insurer whose incurred claims ratio in a year of assessment falls below 75%.
Every insurer, whether liable to pay the levy or not, shall submit a written return to the Zimbabwe Revenue Authority Commissioner-General in each year of assessment stipulating their incurred claims ratio for the year of assessment.
If an insurer is liable to pay the levy in a year of assessment, the payment shall be paid no later than three months of the following year after the year of assessment to which it relates.
Late payment of the statutory insurance levy by an insurer attracts interest at a rate of 15% per annum (for US dollar amounts) or 200% per annum (for Zimdollar payments).
A penalty equal to 100% of the VAT deferred and interest to defaulters under the VAT deferment arrangement was introduced. The maximum period of VAT deferment proposed to increase to three years from 180 days. VAT rate increased from 5% to 6%.
Biti said high marginal tax rates can discourage work, saving, investment, and innovation, while specific tax preferences can affect the allocation of economic resources. But tax cuts can also slow long-run economic growth by increasing deficits.
After the budget shock, Zimbabwe, hard pressed to raise internal revenue to fund the 2024 fiscus, has stayed course with some tax increases and implementation of new ones to contain a fresh wave of price increases across basic and key commodities.
Zimbabwe’s official inflation surged to a six-month high of 26.5% in December 2023 from 21.6% the previous month. Independent economists say inflation is actually well over
In short, Ncube’s tax measures burden the already poor ordinary taxpayers further, while raising the cost of business Zimbabwe whose economy is badly struggling.-STAFF WRITER