‘Take the bitter medicine in one swallow’: Business gives Mthuli its budget prescription

Finance Minister Mthuli Ncube introduced a 2% tax on most electronic transactions last October in a bid to widen government's revenue base/PMUSVANHIRI

Ahead of Finance Minister Mthuli Ncube’s 2019 national budget presentation on November 22, the country’s largest business groups have handed him proposals that would have a far reaching impact on the economy.

The Confederation of Zimbabwe Industries (CZI) wants an end to all subsidies, including on fuel. The Bankers Association of Zimbabwe (BAZ) the removal of “price distortions”, which would mean dropping exchange controls and allowing the bond note to float. The Chamber of Mines wants mines to be allowed to keep more of their export earnings.

Below, we summarise key recommendations by the business groups;

Tax reforms

The CZI says the 2% transaction tax introduced in October is unsustainable as it is eating into company profits. While Ncube tweaked the tax after widespread outcries, CZI says this was not enough.

CZI says: “We recommend that in the 2019 budget the exemptions for tax are widened to include loan drawdowns and loan repayments of the corporates and that an explicit commitment is made that the tax will be significantly modified by the end of 2019, so that the negative impact of the compounding of the text value chains is eliminated and replaced by more sustainable revenue measures.”

The BAZ wants to see higher customs duty on luxury goods, and on goods made in Zimbabwe.

“We even suggest that these be charged in foreign currency, particularly second hand cars,” says BAZ in its recommendations.

Prices and fuel

At current market rates, petrol costs less than US50 cents in Zimbabwe in real terms. Government is reluctant to allow market prices, fearing it would fire up inflation. But CZI and BAZ say subsidies, from fuel to basic commodities, are not sustainable.

CZI says: “We are currently at a point where fuel and basic commodities in Zimbabwe are trading at significant discounts to the prices in regional markets. These are being funded at the cost of our key export sectors, minerals and tobacco. The negative impact of these cannot be overstated. We risk destroying the very sectors which have the greatest potential to bridge our foreign currency gaps.”

According to CZI, Ncube’s prescribed bitter medicine is better taken “in one swallow rather than to sip it slowly over several years”.
“We recommend that all commodities be moved to market price, and that where subsidies are deemed to be necessary, they are targeted at the vulnerable using best practice methods. For employed persons, wage increments can be utilised to cushion employed people against the rise in the prices of the said commodities,” they add.

BAZ has also proposed an increase excise duty on petrol, but not diesel, to limit consumption.

According to BAZ, all pricing distortions must be removed. Bankers have recommended that the bond be allowed to float, but Government insists it remains at par with the US dollar and that floating it completely will see the parallel market rate for greenback spiking.

No surrender
The suspension of production at RioZim mines has shown the dangers of the requirement for exporters to surrender the bulk of their earnings to the Government. The Chamber of Mines and the CZI want surrender requirements dropped. Few investors would go into any market where they have to give away most of their money.
“Surrender of significant portions of revenue makes it less likely that we will see significant investments in mineral exploitation until these surrender requirements are eliminated,” says CZI.

Protection from the taxman
The CZI, many of whose members have disputes with ZIMRA, proposes a new body to arbitrate tax issues with the revenue authority.

“The current structure exhibits a number of shortcomings like delays, uncertainty, lacks impartiality and has the judge, jury and executioner as one institution. We recommend the setting up of an independent structure to handle tax disputes. We also recommend substantive appointments as soon as possible.”