Finance Minister Mthuli Ncube was generous with quotes and Bible verses in his 2020 national budget statement, but stingy on tax breaks to ease the pain of rising inflation.
Ending his speech, Ncube quoted from Proverbs 21 verse 5: “The plans of the diligent lead surely to abundance but everyone who is hasty comes only to poverty”. He also dropped quotes from a Wall Street Journal reporter and from his favourite economist, Joseph Stiglitz, who said: “development is about transforming the lives of people, not just transforming economies”.
But citizens will see scant ‘transformation’ from his budget. Just as he did in the mid-term budget review, he chose once again not to rock the boat with major policy measures, but the downside of the caution is the absence of any real highlight for consumers seeking relief from rising inflation.
Ncube proposed a ZWL$927.3 billion budget. This was much lower than what ministries wanted, he said. In total, ministries requested ZWL$2.7 trillion.
Ncube still expects economic growth of 7.8%, but admits that “renewed pressures on inflation and a misaligned official exchange rate and rising international oil prices” may derail projections.
What’s in it for you in this budget? Not a lot. Here are key points.
Tight-fisted tax breaks
If you are a worker who was hoping for more tax relief on your meagre salary, you will be disappointed. Ncube is moving tax-free thresholds from ZWL$10 000 to ZWL$25 000.
This means the poorest earners will still pay tax.
For context, just hours ahead of Ncube’s budget, Zimstat had said that the total consumption poverty line – the income that you need each month so that you are not classified as poor – was Z$7,556 for one person. Even by these figures, which critics say are conservative, a family of five would need close to Z$37,780 just to stay above water.
Tax bands will end at Z$500 000, above which a tax rate of 40% will apply, starting 1 January 2022.
Ncube was slightly more generous with the bonus tax-free threshold. If you are getting a bonus this year, the tax-free bonus threshold is up from Z$25 000 to Z$100 000.
if you are earning a USD salary of US$100 or less, you don’t need to pay tax. This limit is up from US$70 last year. Your tax-free bonus has been increased from US$320 to US$700, with effect from November.
The US$700 tax-free bonus threshold is a deliberate step. It is meant to ensure that civil servants’ USD bonuses will not be taxed. The maximum USD bonus to be paid to government workers, as announced last week, is US$700.
For a retrenchment package, the non-taxable portion of a Zimdollar package is up from the previous level of ZWL 50 000 or a third of the retrenchment package, to Z$400 000 or a third of the retrenchment package, whichever is more, up to a maximum of ZWL 2 million.
What’s in it for business?
Just like in the mid-term budget, Ncube stayed away from major policy decisions.
A major tax decision is good news for companies importing capital equipment for industries such as mining, manufacturing, agriculture, and energy. If you are running a business, you can now import capital equipment duty-free. Rebates will be given only if you are importing equipment worth at least US$10 000.
Ncube is increasing excise duty on cigarettes from 20% and US$5.00/1000 cigarettes to 25% plus US$5.00/1000. According to Ncube, this is “to benchmark excise tax rates with the practice in the region, thereby curbing illicit flows and also mobilize additional revenue”.
There is also a new excise duty of US$0.05/litre on energy drinks. Money from the cigarette and drinks taxes will go into a fund to fight non-communicable diseases such as diabetes and hypertension.
If you are into cellphones, look away now. Currently, cellphones attract duty of 25%.
Ncube is proposing a levy of US$50 or the Zimdollar equivalent. He says this will be “collected prior to registration of new cellular handsets by mobile network providers”. But if you have paid the duty, ZIMRA will refund that levy within 30 days.
Ncube says the measure is necessary because cellphones “can be easily concealed and smuggled”. But his measure may only add another layer of bureaucracy, and open the door for smugglers.
Withholding tax up
Currently, if you provide a service to a formal business but do not have a tax clearance certificate, your client is required to withhold 10% from your payment. If you charge your client $100, they pay you $90 and take the $10 to ZIMRA.
Ncube says this is too low; it is not tough enough to push people to be tax-compliant. So he is raising withholding tax to 30% from January. This means that if you charged a formal business $100 for a job, they must pay you $70, down from $90.
This will affect individual contractors and your small business. The option is to either increase prices to cover for the tax, risking losing business, or get that ZIMRA tax clearance.
Currently, a stock market investor pays 1% for shares bought and sold. Mthuli believes many are holding stocks for speculation. He proposes to raise the withholding tax to 1.5% on shares that are held for a minimum period of six months. Shares that you hold for less than six months will attract withholding tax of 2%. Together with brokerage fees and other expenses, trading on the stock market just got a bit more costly for many, especially the retail traders who have entered the market in increasing numbers lately.