A big ask for Mthuli

November 25, 2021

Today is Finance and Economic Development minister Mthuli Ncube’s big day.

 

He will present the ZWL$900bn national budget for 2022, his fourth since taking over the reins at Treasury in 2018.

This is no easy task as he has to balance the interests of all the constituencies. The government requires revenue to finance recurrent and non-recurrent expenditure.

The only route is to hike taxes or introduce new tax heads to raise revenue in the absence of the government’s capacity to borrow from multilateral financial institutions to fund the budget deficit.

This absence of funding from multilaterals means Zimbabwe is on its own and has to get the bulk of its resources in tax revenue and borrow the difference from the domestic market.

The government can also borrow from the central bank. Ncube has said the government will not turn to the central bank.

This leaves Ncube with limited options.

Notwithstanding the little fiscal space, the government has to take care of its employees.

The restive civil service has kept the government on its toes and is pushing the employer to restore their salaries to the US$420 pre-2018 levels.

The government, however, acknowledges the low salaries but says it has no resources to match the pre-2018 levels and would increase salaries as and when resources are available.

Ncube has said the budget will be pro-poor and the employees would want tax relief. Parliament’s Budget and Finance committee wants the tax free threshold to rise four-fold to ZWL$40,000 from the current ZWL$10,000. This comes as the Consumer Council of Zimbabwe said a family of six requires ZWL$50,000 per month.

Businesses are still to recover from the effects of the measures instituted this year to combat the spread of the Covid-19 pandemic. In financial results of listed companies, they are unanimous that they were affected by the lockdown measures.

They are rebuilding their capacities to pre-lockdown levels.

However, they face a new threat: foreign currency shortages. The foreign currency auction has not been a favourite hunting ground with allotment backlogs of two months.

They are left with no option but to get the greenback on the parallel market where rates have been volatile pushing up prices.

The central bank said last week that the Treasury has availed resources to clear the backlog.

They require relief to pull through after a difficult year punctuated by two lockdowns in January and in June.

A recent state of the mining sector report shows that the sector expects the fiscal framework to remain sub-optimal. Mining executives say issues affecting the sector include high royalty beneficiation taxes and high environmental management levies, among others.

The platinum group metals want the removal of beneficiation taxes and an introduction of beneficiation incentives to accelerate capital spending on beneficiation in the sector.

 

According to the report, diamond producers say the royalty for diamonds at 10% is one of the highest in the world and is undermining the viability of producers.

 

In its recent submissions, the Zimbabwe National Chamber of Commerce (ZNCC) said Zimbabwe’s tax system needs review as it is leaning more on tax collection than the growth of the industry.

It said the system does not promote compliance and investment but rather promotes tax evasion, defaults, informalisation of businesses and company closures.

The ZNCC said the system is penalising the complying formal businesses the most. The system is punitive given the prevailing operating environment as it increases the cost of doing business rendering local products uncompetitive.

 

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