Slash taxes on exporters — CZI
ZIMBABWE’S manufacturing sector representative body is lobbying the government to slash taxes levied on exporters, among other tax reforms, as industry continues to face stiff competition from regional peers due to multiple layers of statutory obligations, The NewsHawks has established.
Local firms are currently operating below optimal capacity due to limited access to long-term financing to re-tool, as well as tariff and non-tariff barriers stifling them from penetrating new markets.
Ahead of the National Budget presentation which is traditionally presented before Parliament in November, the Confederation of Zimbabwe Industries (CZI) has drafted several tax-related reforms to improve the ease of doing business, especially for exporters.
The southern African nation mainly exports primary goods and has been for years at the tail end of the World Bank Ease of Doing Business rankings.
“The 2022 budget should begin to commit resources to industrialisation, specifically by coming up with a resource envelope which value chain players can tap into to pursue industrialisation. Mechanisms can be put in place to ensure that the resources are accessible only for ring-fenced uses, with limited possibilities of diversion,” reads the draft submissions which are currently being reviewed by players.
“Export receipts are now playing a central role in the economy. Efforts should be more on export promotion by minimising taxation of exports. The current export tax regime needs to be reviewed with a view to eliminating and reducing export taxes. For example, exporters pay up to 45% cumulatively in taxes. While the tax incentives that have been introduced are welcome, the export surrender requirements need to be reviewed downwards, especially in the face of exchange rate distortions, which are threatening the viability of exporting manufacturing firms.”
The CZI said the government should, among other measures, widen taxable income to 35% to stimulate domestic savings and consumption. Experts say the country’s income tax threshold has triggered skills flight over the past few years.
“Industry needs a spending population to thrive; hence the 2022 National Budget should prioritise increasing the spending power of the population. In addition to the general need to review upwards civil servants’ salaries, widening the PAYE (Pay As You Earn) tax bands and increasing the tax-free threshold will help create more disposable income for the workers. Prioritising social safety nets will also help ensure that the vulnerable population can at least afford some basic needs, which industry would help meet,” the CZI said.
“The 2% IMTT (Intermediated Money Transfer Tax) is not an income tax but is actually a transaction tax. Since it is now applied to all transactions, even on formal businesses that also pay corporate tax, the 2022 budget should make the IMTT tax deductible just like other transaction taxes.” The CZI warned that more companies would start defaulting or avoiding their tax obligations as long the Treasury continues to pronounce more belt-tightening measures. “Increasing taxes can actually reduce tax revenue due to reduction in compliance. The 2022 National Budget should start laying the foundation for increasing the tax base,” the CZI said.
“More incentives for ensuring that business opportunities emerge which informal sector and SMEs can exploit but with formalisation being the condition can see the expansion of the tax base. Zimbabwe tax statues are old and have evolved over the years into a very complex and at times contradictory tax code. This makes tax compliance difficult and complex for business. A friendly and conducive tax regime will ensure that all entities operating outside the tax system and the informal sector become part of the country’s tax system.”