Industry feeling the pinch

LIVINGSTONE MARUFU

Local companies want Finance minister Mthuli Ncube to raise the tax-free threshold as the low disposable incomes have led to reduced sales.

Business leaders want Ncube to be bold by raising the tax-free threshold which is a necessary step to boosting aggregate demand.

Ncube is expected to present his 2023 National Budget next month against the backdrop of uncertainty, liquidity challenges and weak disposable incomes, among others.

In its budget submissions to Ncube, the country’s biggest lobby group, the Confederation of Zimbabwe Industries said the Treasury chief should come up with policy measures that boost aggregate demand for locally produced goods.

“Treasury should put in place policy measures that increase consumer spending as industry needs a spending population to thrive, hence the 2023 National Budget should prioritise increasing the spending power of the population.

“Increase the tax-free threshold to an equivalent of about US$100 per month based on the prevailing exchange rate on the date of announcement of the budget.

“Growth of the manufacturing sector only happens when output being produced locally increases. However, some of the measures that have been put in place by the Ministry of Finance in the year 2022 hinder the manufacturing sector from achieving the growth targets.” CZI said.

It said the tax base is currently too narrow and complying firms are already overtaxed.

CZI said the government is placing too much emphasis on taxing the shrinking formal sector and in the process increasing its tax burden and creating unfair competition with the informal sector.

“For example, the Intermediated Money Transfer tax (IMTT) is not an income tax but a transaction tax. Since it is now applied to all transactions, even on formal businesses that also pay corporate tax, it is high time the IMTT tax is deductible just like other transaction taxes,” CZI said.

The Confederation of Zimbabwe Retailers president Denford Mutashu said there was a need to address taxation issues to increase productivity in the formal sector.

“Domestic demand is weak mainly because this has been a drought year, and incomes are generally low, and external developments have also contributed to eroding incomes.

“So the weak demand also puts downward pressure on prices, as most consumers don’t afford a wider range of goods and services.

“The high inflation is further eroding demand for necessities as it eats into the little income,” Mutashu said.

He said the government has to judiciously balance the need to promote stability through fiscal and monetary tightening stance with the need to ensure that sustainable demand is fostered to avoid “social instability, including crimes such as robberies which are on the rise”.

“In an environment that is currently marked by weak aggregate demand and retailers facing reduced sales, it is also important for the government to continue supporting and incentivising consumers to afford more,” Mutashu said.

The Zimbabwe National Chamber of Commerce (ZNCC) said  the Treasury has to deal with the burden of the IMTT tax.

“…The chamber proposes that the Ministry of Finance and Economic Development should allow the IMTT to be tax deductible and it should be removed when remitting tax to ZIMRA,” it said.

“Despite the increase on IMTT on foreign currency transactions in May 2022, there was already a public outcry that bank charges were too high on Nostro accounts of which the greater part of the charges was government taxes and levies.

“The Treasury is strongly urged to take a self-stance on compliant formal businesses which consist of just 20% of the businesses operating in Zimbabwe,” ZNCC said.

The Chamber recommended the levelling of the playing field with regards to the taxes on the transfer of funds in both local and foreign currency as the 4% IMTT on foreign currency transactions is a disincentive to banking and has resulted in starving the supply of foreign currency liquidity to the formal banking channels.