Industry push for VAT cut

LIVINGSTONE MARUFU

Captains of industry are advocating for a reduction of the Value-Added Tax (VAT) from the current 15% rate to 14% in order to stimulate overall demand, Business Times can report.

This is a reaction to worries that a high VAT rate would exacerbate informalization and worsen consumers’ already diminishing purchasing power.

The Zimbabwe National Chamber of Commerce (ZNCC) suggested that the government reduce a number of tax heads in order to promote formalization in its 2024 National Budget submissions to the Ministry of Finance and Investment Promotion.

“In the 2023 National Budget, the government of Zimbabwe through the Ministry of Finance and Economic Development increased value-added tax (VAT) from 14.5% to 15%. The implication of this is that the additional cost of 0.5% was pushed to the consumer and in the process, added burden to the overly taxed population and thus, reduced consumer welfare. 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,” ZNCC said.

The Confederation of Zimbabwe Industries president Kurai Matsheza concurred.

“The Zimbabwean economy is heavily taxed therefore a reduction of VAT to 14% will go a long way in boosting the aggregate demand as well as reducing costs on goods,” he said.

Due to harsh taxes, economists claim that the current government’s policies promote informalization over formalization.

“Goods in the country are not competitive as prices of the local goods are too high hence the government should reduce many tax heads including VAT to make them competitive and encourage the general populace to buy in formal shops rather than the current set up where consumers prefer the informal sector on the back of affordability,” economist Gift Mugano told Business Times.

In an effort to ease the strain on the formal sector, businesses also want the Intermediate Money Transfer Tax (IMTT) eliminated.

“When 2% IMTT was introduced, the spirit of the tax was to bring into taxation the informal sector which was not being taxed. What it has done, however, is to overly tax the formal taxpayers. Businesses are incurring the IMTT even when paying tax dues to Zimbabwe Revenue Authority, thus it is a tax on tax.

“To cushion the supply chain players against the increased cost of production, the cost is passed on to the consumer in the form of price increases across all goods,” ZNCC said .

“It cannot be emphasized how the intermediate transaction tax has a compounded effect on the supply chain due to the incremental tax charged from the producer to the consumer.”