Finance Minister Mthuli Ncube has trimmed his economic growth forecast for 2022 to 4.6% from his previous 5.5%, citing “the impact of the external global environment as well as our own unique circumstances”.
Ncube presented his Mid-Term Budget Review statement to Parliament on Thursday.
He announced a raft of measures to increase revenues, and this includes new taxes on mines and tougher action against tax dodgers.
Here are some highlights:
Reflecting the impact of inflation on the budget, Ncube announced a supplementary budget, proposing additional spending of ZWL$929 billion. Of this extra money, 53% is going towards salaries, while 19% will go to capital projects.
In the first six months of the year, the government collected revenue of Z$506.6 billion and spent Z$534.5 billion. This left a budget deficit of Z$27.9 billion, against a target deficit of Z$45 billion.
Tax relief measures
People earning Z$600,000 per year, or Z$50,000 per month, will no longer pay tax. This is up from the previous Z$300,000 threshold. Tax bands now end at Z$12 million from Z$6,000,000 per annum. Above this, tax will be 40%. This is with effect from 1 August. The Zimdollar tax-free bonus threshold is up from ZW$100,000 to ZW$500,000 from November.
The 2% tax on electronic money transfers will now apply only to transactions above Z$2,500, up from the previous Z$1,000. For companies, the maximum tax payable per transaction is up from Z$1,320,000 to Z$3,300,000 on transactions above Z$165 million.
Ncube wants more taxes from miners and tougher action on tax avoiders.
Ncube says mines are contributing just 1.2% of GDP in direct taxes, which he says is lower than the regional average of 2%.
Platinum miners, for example, pay 2.5%, after royalty was cut from 10% in 2017. In comparison, gold miners pay royalties of up to 5%. Ncube is, therefore, increasing royalties for platinum miners to 5%. Lithium producers will also pay a 5% royalty, starting in January.
Going after tax dodgers
Ncube says people that owe ZIMRA are avoiding having their accounts garnished by simply moving their money to other accounts. Attaching their property to recover tax needs a court order, which takes too long.
He, therefore, proposes that businesses that owe ZIMRA be shut down temporarily until they pay up. “This process will only be initiated after issuance of the required statutory notices by ZIMRA.”
While the VAT Act provides for penalties for those who don’t pay taxes, it is still not an offence to dodge tax. Mthuli wants this changed. “I, therefore, propose to criminalise non-payment of tax and also to provide a penalty thereof.”
As at 30 June 2022, ZIMRA was owed Z$23.05 billion in unpaid taxes.
Currently, a company that earns the equivalent of US$60,000 annually is required to register for VAT. Ncube is lowering this to the equivalent of US$40,000 “in the interest of revenue (and) to maintain a stable tax base”. This means smaller businesses will be made to pay more tax, starting September.
Imports and Exports
Zimbabwe’s exports rose 33% to US$3.5 billion while imports grew 15% to US$3.7 billion in the first six months of 2022. Exports are expected to reach US$7.3 billion this year, driven by stronger commodity prices plus agriculture and manufactured exports.
Zimbabwe’s external debt is now US$13.2 billion. Mthuli says: “The country’s external debt continues to burden the economy by restricting access to low cost, long-term financing required to support the desired medium to long term growth trajectory”
Mthuli Ncube says Zimbabwe is to soon host a debt forum with Development Partners and other stakeholders “aimed at building consensus among all stakeholders”.
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The outlook looks grim
While Ncube tried to sound confident over future growth, the budget statement carried his anxiety over risks building up on the horizon.
He admits that inflation and the fall of the Zimdollar “pose the greatest risk that could potentially knock down economic growth by between 2% and 3%”.
Ncube said he is under pressure from workers demanding salaries in forex on one side, and companies that want to pay taxes in Zimdollars on the other.
“If this is not contained, Government will face serious US dollar cash flow demands,” he warns.
No return to subsidies
Ncube wants utilities to charge economic tariffs. This points to higher costs for power and other services, and would add even more fuel to inflation.
Ncube says: “There is urgent need for appropriate pricing of public goods and services, such as electricity, water and fuel, in order to reduce the subsidy burden and demand for the services whilst also providing scope for maintenance of critical assets.”
Rising global costs may disrupt the rollout of public infrastructure projects, and government may have to renegotiate some contracts, according to Ncube
“Infrastructure delivery costs are likely to increase significantly due to global inflation and may impact on construction input costs such as aluminium, steel and cement, requiring existing contracts to be re-evaluated or re-negotiated.”