More pressure on Mthuli

BUSINESS REPORTER

Finance Minister Mthuli Ncube is today expected to deliver his Mid-Term Fiscal Policy Statement with business lobby groups and economists advising him to come up with measures to breathe life into the sluggish economy, Business Times can report.

They argued that in order to repair the damaged economy, Professor Ncube should also devise policies that entice investors.

His mid-term budget review comes at a time when the economy is severely impacted by a myriad of headwinds including punitive tax regime, a wave of corporate closures, high unemployment rate, among many other challenges, ravaging the economy.

In today’s Mid-term Budget review, they added, Professor Ncube should demonstrate a commitment to reining in unmanageable debt and cutting back on government spending.
They added that Professor Ncube needed to address the high cost of doing business and the lack of investment inflows.
Together with growing recurrent expenses and a shrinking tax base, declining tax base, limited revenue inflows have put Zimbabwe’s fiscal space under extreme strain.
They  also advised him to deal with the cash-guzzling State-owned entities.

The State-owned companies have been draining fiscus through perennial bailouts.

They said Ncube should come up with policies that ensure they become financially self-sustaining.

This, they said, would ensure that fiscus is relieved from carrying the burden of perennial bailouts.

They  also said the 2%  tax on electronic  transactions, which have been piling misery on citizens and companies, should be scrapped as it is hurting the economy.

In their submissions banks have called for a downward review of the 2% tax.

The Intermediated Money Transfer Tax (IMTT), according to the Bankers Association of Zimbabwe (BAZ), has deterred most individuals from using banks.

“IMTT is punishing both individuals and other entities that want to transact formally. Export competitiveness is also affected negatively due to the increased cost of production, and this reduces the country’s capacity to earn foreign currency and improve the balance of trade,” part of BAZ  submissions to Treasury reads.

It continued: “The rate of 2% IMTT on electronic transactions has exacerbated disintermediation, promoting the use of cash by the transacting public and discouraging the use of formal channels.

“The increased use of cash in transactions is happening in informal establishments which tend not to be registered for wider tax obligations such as VAT, PAYE, corporate tax etc, hence this is resulting in increased revenue leakages.

“IMTT increases the cost of doing business and, therefore, discourages informal entities from conducting their businesses formally.

“Increased cash transactions are exposing cash handlers to robberies, some of which have resulted in loss of life. A reduction in IMTT will also cushion the transacting public during this challenging time. Alternatively, IMTT should be allowed as a deductible tax expense for those entities that are up to date with corporate and personal income tax, if a rebate is not palatable,” banks said.

Local banks, who have lost more than 100 correspondent banking ties in the last few years, are irate and argue that in order to access new foreign capital, the government needs to fix the debt situation.

“The authorities should finalise the Arrears Clearance and Debt Relief Strategy -which hinges on the continued strengthening of cooperation with International Financial Institutions (IFIs), negotiating for arrears clearance and debt relief and restructuring with the IFIs,” BAZ said.

 The Zimbabwe National Chamber of Commerce (ZNCC), a business lobby group, voiced concerns about excessive taxation.

“The Chamber deemed some of the tax policy measures introduced as punitive in nature, there is a need to revise this,” ZNCC said.

To secure long-term funding, the ZNCC has also urged the government to speed up the debt settlement and arrears clearance procedures.

Amidst elevated country risk, local businesses and banks have encountered difficulties accessing substantial loan lines.

According to official data obtained from the Ministry of Finance, Economic Development, and Investment Promotion, Zimbabwe is estimated to owe approximately US$18 b in debt, of which US$12.7 billion is external debt, including liabilities on the central bank balance sheet that the Treasury has taken on. Domestic debt is estimated to be more than US$5 billion.

“Arrears should be cleared to unlock new funding lines and any debt accumulation should be in line with the Public Debt Management Act [Chapter 22:21]. There is a view that the private sector is being sidelined in the debt restructuring negotiations (external debt dialogue platform) at a time when they could proffer solutions to the debt puzzle,” ZNCC said.

Equally worried is the Chamber of Mines Zimbabwe (CoMZ).

The chamber said the Special Capital Gains Tax needs to be revised.

“The 2024 Finance Act introduced the Special Capital Gains Tax  on transfer of mining titles. Of major concern to investors is the application of the tax in retrospect, backdated 10 years and for it to apply even if the titles had been forfeited or abandoned.

“We are of the view that investors or mineral producers that had complied with the law at the time they transferred title should not be affected by this new law as it brings uncertainty on Zimbabwe as a destination for investments.

“Furthermore, the rate of tax at 20% is too high compared to what obtains in other mining jurisdictions, thus it has potential to undermine the country as a potential recipient of investments in mineral exploration.  In addition, the principle of levying the tax on gross proceeds as well on the buyer is against best practice where capital gains tax is chargeable on the transaction gain and is levied on the seller who would have realised a profit on disposal,” the Chamber of Mines said.

According to economist Vince Musewe, the debt will keep rising because the government has failed the reforms test imposed by its development partners.

He claimed that pursuing a debt write-off was the only viable option.

“Zimbabwe’s debt will never be fully paid back. The best route is for it to be written off, but the geopolitics are not in favour of a debt free Zimbabwe. Arrears will continue to balloon and it’s a never-ending debt abyss. This of course will continue to impact access to offshore finance for business,”Musewe said.

Another economist,Dr  Prosper Chitambara concurred.

“We need to expedite  the arrears clearance  and engagement with the international community  because it increases  the risk premium that is associated with  Zimbabwe as an investment destination. It  makes it difficult for the private sector and government   to unlock capital offshore.
“The country and local firms have been borrowing at high market interest rates plus high premiums. It is not going to be resolved overnight but the reenagement becomes very critical. The government has agreed on the kind of reforms that need to be implemented to unlock funding. It is something that we need to work vigorously on. It is a major albatross around our neck as an economy.”

In addition, Eddie Cross, another economist, expressed similar views, adding that a debt statement will be crucial because the country’s debt has grown.

Restructuring debt, according to economist Persistence Gwanyanya, a member of the Monetary Policy Committee, is essential to reviving the economy.

At the recent Institute of Chartered Accountants of Zimbabwe winter school in the resort  city of Victoria Falls, David Mnangagwa, the deputy minister of finance, economic development, and investment promotion, intimated that there won’t be any tax increases.

“I don’t want to pre-empt the minister’s Mid-Term Review, but I will say don’t expect any tax raises.

“What we need to do is re-look at our expenditure and how we assign it,” Mnangagwa said.