All eyes on Mthuli | Business Times

 

LIVINGSTONE MARUFU

 

Finance Minister, Professor Mthuli Ncube today presents his proposed 2024 National Budget amid multiple economic challenges that he is expected to face head-on and find solutions to.

Ncube faces a daunting task to convince expectant Zimbabweans that he can revitalise the country’s faltering economy in face of numerous economic setbacks.

The budget comes at a time when the fiscal space is extremely constrained as a result of low revenue inflows combined with growing recurrent expenses and a shrinking tax base.

The ailing economy is  also grappling with an expanding corporate graveyard, a crippling power crisis, a high unemployment rate, shortages of foreign currency, a crisis in the health care sector, a high debt load, and a multitude of taxes, among many other headwinds. To promote the use of plastic money and lessen inflationary pressures, there is also a great deal of expectation that the intermediated money transfer tax (IMTT) on electronic money will be removed.

Professor Ncube predicted in his 2024 national budget strategy paper that revenue collections would total ZWL$30.7 trillion by year end, compared to expenditures of ZWL$33.1 trillion, resulting in a ZWL$2.3 trillion budget deficit.

The budget strategy paper places a strong emphasis on the need to deepen economic transformation, mobilize domestic resources more quickly, and encourage foreign and domestic investment in projects that align with the priorities of the National Development Strategy.

Multiple business leaders and economists have expressed the opinion that Professor Ncube, who faces a challenging assignment, should prescribe policies and measures  to stimulate the faltering economy.

In addition, they said  he needs to demonstrate his resolve  to cut back government spending and  reining in the  government’s spiralling  debt, which is estimated to be close to US$20bn.

Additionally, Professor Ncube will also be evaluated on how  he handles State entities  that consistently incur  losses  and require bailouts  from  the Treasury to fund their operations. They asserted that in order to prevent additional losses by certain parastatals, government entity reforms must be accelerated.

Punitive taxes, according to several analysts, discourage investment, encourage informalization, and impede attempts to revitalise business.

According to the Confederation of Zimbabwe Industries (CZI), the largest business lobby group in the country, the finance minister should drastically lower taxes in order to boost aggregate  demand and draw foreign investment.

“The business sector generally appreciates the need for paying taxes. However, the current tax models are difficult for businesses to comprehend, and they incur huge costs in hiring tax experts to help them.

“In addition, the general presumptive tax grossly undervalues the tax paid as there are some businesses that move huge volumes that make the presumptive taxes very low.

“On small businesses, the government  should adopt  a simple tax model based on turnover/sales volumes as an option for small businesses that lack the capacity. Given that turnover tax might penalise loss making firms, an amount of about 0.5% might be sufficient for the government to make a return while also encouraging the businesses to invest in the necessary taxation knowledge,” CZI said.

It said that the government should forbid non-fiscalised invoices for income tax and that the precise wording of this law needs to be clarified.

“We do not believe that the legislation was intended to affect businesses that are not VAT registered since, by definition, such businesses cannot issue fiscalised invoices. However, the view in the market is that, if the service provided is subject to VAT when provided by a registered operator, then the same service provided by a small business not big enough to be registered should be disallowed for income tax purposes. This clearly prejudices the SME sector.

“We are expecting a  clarification of legislation to clearly allow invoices issued by non registered operators. Ncube is expected to come up with policies that  boost aggregate demand on locally produced goods, increasing consumer spending as the industry needs a spending population to thrive; hence the 2024 National Budget should prioritise increasing the spending power of the population.

“An increase in the tax-free threshold to a minimum equivalent of about US$100 per month based on the prevailing exchange rate on the date of announcement of the budget,”CZI said.

According to CZI, since its inception, the IMTT has imposed a burden on formal businesses.

“The tax base is currently too narrow and complying firms are already overtaxed. The IMTT was introduced primarily as an innovative platform to tax the informal sector. However, the informal sector has since migrated to largely United States dollars  cash sales and is not contributing much to the IMTT.

“This leaves compliant businesses that are already subject to other tax heads feeling the full brunt of the IMTT. However, the IMTT is not an income tax but is actually a transaction tax.

“Since it is now applied to all transactions, including those that also pay corporate tax, it needs to be tax deductible just like other transaction taxes. In addition, the IMTT is also very heavy on businesses that operate on thin profit margins, with most of our members indicating margins of about 6%.

What this implies is that if 2% is charged on transfers that would ideally generate 6%, effectively profit margins would be reduced by 33%,” CZI said.

The Zimbabwe National Chamber of Commerce (ZNCC)  concurred with CZI.

“In the 2022 Mid-term Budget Statement, the Honourable Minister proposed to increase the value of tax-exempt transactions from ZWL$1,000 to ZWL$2,500.

“As the exchange rate continues to depreciate and to cushion the 44% of Zimbabweans languishing in poverty, it is ideal to upward review the value of tax-exempt transactions to at most US$20 and align this to the exchange rate movement to stimulate aggregate demand in the economy by reducing the effect of the IMTT on disposable incomes. This should be replicated for corporates,” ZNCC said.

It said the budget should prioritize the long-term recovery of the economy and the creation of jobs by increasing spending on or allocation to economically productive sectors of the economy and by implementing targeted tax incentives.

ZNCC said that while closely monitoring fiscal consolidation, increased social spending should adhere to international norms and work toward accomplishing Vision 2030 and the Sustainable Development Goals.

“Overall, aggregate demand in the economy was also reduced as disposable incomes were negatively affected. Our request is that VAT should be reduced from the current 15% to 14% in an endeavour to boost aggregate demand in the economy.

“The government is the biggest consumer in our economy. Once a business issues an invoice to the government, settlements are made in about six  months or even more and businesses are compelled to pay VAT regardless of the payment being received or not. The current setup is that a fiscal tax invoice should be issued within 30 days of supply and on/before the 25th of every month, VAT returns should be submitted. However, in some cases, payment will not have been received by then.

“Our request is that VAT payments should be made on the actual cash received by the business and not on an invoice basis. Also, the VAT burden should not be on businesses except to collect the VAT on behalf of the Government. Turnover tax is being used as an avenue in other countries and it can be used also as an option by Zimbabwe Revenue Authority  [ZIMRA],” ZNCC said.

The high tax regime worries miners as well, and they want the government to re-evaluate taxes.

“Taxes and fiscal charges continue  to undermine product narrowed profitability on most mines and affect viability in the mining sector. The authorities  have increased royalties, beneficiation tax and other charges  to increase its revenue base  but this has caused viability challenges on most mines. We expect the Treasury to reduce punitive taxes to improve the sector’s viability.

“We expect the Minister to  cut high royalty for platinum, lithium, and diamond as it increases cost of production impacting on the viability of mining projects,” the Chamber of Mines of Zimbabwe  CEO, Isaac Kwesu told Business Times this week.

He added: “We would also want the Treasury  to cut export tax on PGMs concentrates, Rural District Council levies and high environmental charges to ramp up production and increase viability.”

According to economist Christopher Mugaga, the budget and the monetary developments in the economy ought to work in tandem.

Calls for Professor Ncube to present the national budget for 2024 in United States dollars  were abruptly rejected last week.

“An average of 95% of the total deposits  in the banking sector are in United States dollars so you can’t have a budget that is untelepathic  hence we need a budget that is telepathic with the monetary developments hence we need a realistic budget  that generates revenue from  the United States dollars taxation.

“But what the budget needs to avoid is to create commitments in United States dollars for example salaries and wages like the current scenario where the government still pays covid-19 allowances in forex.

“The budget should also come up with a concrete dedollarisation roadmap to strengthen the local currency ahead of the  2030 period which marks the end of the multi-currency tenure,”Mugaga said.

The budget is being presented at a time when 5.2% economic growth is anticipated despite anticipated declines in metal prices and a quiet agricultural season.

 

 

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