This week on Monday, the Minister of Finance and Economic Development, Mthuli Ncube and the governor of the Reserve Bank of Zimbabwe presented seemingly high-sounding economic measures.
The statements, however, left many ordinary Zimbabweans in a precarious position especially after the introduction of a punitive tax on electronic transactions. Previously, government was charging a flat five cents per transaction. But now, President Emmerson Mnangagwa’s administration is charging two cents per every dollar transacted, resulting in an outcry from long-suffering Zimbabweans, who now feel squeezed.
The Monetary Policy has in essence sent shivers down the spines of many players in the economy as they fear sliding back to the 2008 scenario which emptied supermarket shelves. The monetary authorities are best advised to assess the degree of what the statement did to the economy on the ground and immediately plug holes going forward.
The central bank governor tried hard to reduce leakages of foreign currency by introducing measures requiring all banks to use letters of credit for high value transactions, have imports supported by invoices whose banking details match with payee’s name in the banking account details, and remittance of all export proceeds on time.
To curtail arbitrage in the foreign currency market by foreign truckers, the central banks said all foreign truckers will now be required to purchase fuel in Zimbabwe using foreign currency at official exchange rates.
Jewellers will now be required to buy gold in foreign currency and retain all export proceeds. Previously, jewellers bought gold from Fidelity Printers and Refiners and retained only 35 percent of the export proceeds.
All purchases of gold shall now be in forex. In terms of settlement of capital gains tax (CGT) using offshore accounts, all sellers of immovable property to buyers with offshore funds are now required to pay the CGT into a Zimbabwe Revenue Authority (Zimra) designated Foreign Currency Account (FCA).
In order for Zimbabwe to derive maximum benefits from offshore investments by local entities going forward, all offshore investments in the form of offshore holding companies intending to dispose of part of their shares to foreign investors, shall be required to repatriate all the realised proceeds to Zimbabwe.
In cases where the offshore holding company intends to expand into other countries, a minimum portion of raised capital equal to the level of dilution should be remitted to Zimbabwe to support local operations.
Mangudya had said the “monetary policy was aimed at addressing price and financial stability in the economy,” but it would appear the reverse is what happened; commodity prices shot up the day after the policy because retailers generally quoted 10 percent increment on products to cushion themselves on the electronic money transfer adjustments
The business community, both at macro and micro levels, is struggling to comprehend the latest pronouncements by the governor and there is general panic in the market as a result of the monetary policy.
After a grand entrance when he was appointed Minister of Finance and Economic Development, Mthuli Ncube, is now faced with the complex reality of an economy whose foreign debt currently stands at $7 billion while local debt is pegged at $9,5 billion. The arrears include $1,2 billion owed to the World Bank and $600 million owed to the African Development Bank. To date, Treasury Bill issuances have increased from US$2,1 billion in 2016 to a cumulative US$7,6 billion, by end of August 2018.
Official Gross Domestic Product is pegged at $15 billion while the government’s borrowing is around $17 billion.
Business Times picked up random reactions on Twitter and it appears the public was not impressed by the tax imposed on the people.
“This 2% is another monumental failure by the authorities. Dealing with symptoms and not the disease. RBZ creates excessive RTGS money and punishes the nation for that? Seriously? Common sense: “any excessive taxation, results in lower taxes collected per every dollar”- Zondi Kumwenda
