Sales volumes at OK Zimbabwe rose by 43% in the six months to September, recovering from the COVID-hit 2020, but a growing tax bill is eroding the benefits of that recovery.
The half-year period leading up to September was “less turbulent” than the same time last year, says OK, one of the country’s biggest retailers. Recovery in disposable incomes and an easing of lockdowns saw volumes 43% up on the same time last year, when trading and supplies were restricted, and spending was hit hard.
But the better sales volumes are not feeding down to the bottomline enough, as overheads grew by 60%. This is mainly due to the intermediated money transfer tax (IMTT), the 2% tax levied on electronic transactions. Last year, Treasury increased the maximum amount on which the tax can be levied, and this ate into OK’s earnings.
“The IMTT burden on the business grew by 233% to ZW$ 450 million (ZW$ 135 million for prior year) as a result of the increase in tax ceiling from ZW$25 000 in prior year to ZW$ 800,000 per transaction in the current financial year,” OK says. “The increase in tax significantly eroded the business’ gross margins.”
The big IMTT expense meant that OK’s effective tax rate rose to 39.4% from 27.4% this time last year.
OK says: “We urge the fiscal authorities to review the structure of this tax so as to reduce its undesired consequences on tax compliant formal businesses.”
The IMTT, introduced in 2018, is one of the biggest revenue generators for government. By September, the tax had earned Treasury close to Z$30 billion in revenues this year. By year-end, Treasury expects the tax to have brought in Z$43 billion in 2021.
OK sees a recovery in consumer demand continuing this year.
“The forecast good rains in the 2021/22 agricultural season and positive developments in the mining and manufacturing sectors of the economy, should result in an upturn in real disposable incomes and consumer spending, which presents opportunities for the group,” OK said.
The company has changed its top management, in what it describes as a “leadership renewal process”. Long serving executives, CEO Edgar Siyavora and commercial director Albert Katsande, left this year.
Maxen Karombo was appointed CEO while Phillimon Mushosho joined as CFO. There were also new appointments in Marketing, Human Resources, Supply Chain and Operations.