Mthuli under pressure to ease tax burden

LIVINGSTONE MARUFU

Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube is under growing pressure from business leaders and economists to cut taxes and reduce the cost of doing business ahead of the 2025 Mid-Term Budget Review, expected in the coming weeks.

At the heart of these calls is the contentious 2% Intermediated Money Transfer Tax (IMTT), which critics argue has become a punitive levy on formal economic activity. Business leaders are also pushing for a review of the personal income tax-free threshold, streamlining of licensing and compliance fees, and a more coherent fiscal framework to stimulate growth amid deepening economic headwinds.

Zimbabwe’s economy is contending with a confluence of macroeconomic challenges—rising company closures, mass retrenchments, eroding consumer demand, and widening trade deficits.

“The tax environment has become uncompetitive and unsustainable,” the CEO Africa Roundtable (ART) noted in its formal budget submission. “Businesses face more than 50 different tax heads and regulatory costs. The cumulative impact of these, including the IMTT, has driven the effective tax rate above 40%. This discourages compliance, undermines business confidence, and stifles productivity.”

ART urged the Treasury to scrap the IMTT and raise the tax-free income threshold as measures to boost aggregate demand and encourage voluntary tax compliance.

Several economists share the view that Zimbabwe’s tax regime has become a drag on investment and growth.

“There are too many taxes in Zimbabwe,” said economist Trust Chikohora. “The IMTT is levied on top of income tax, VAT, PAYE, and other charges. It’s become a cost of transacting—not just a revenue mobilisation tool.”

He added: “At the very least, government should make the IMTT tax-deductible and raise the tax-free threshold to around US$200. That would increase disposable income and reignite consumer spending.”

Chikohora also warned that regulatory duplication—such as multiple licensing fees, local authority levies, and environmental approvals—has made compliance prohibitively expensive, forcing many businesses into informality.

Yet despite mounting calls for reform, some economists argue that Professor Ncube may not have much fiscal room to manoeuvre.

“The 2025 Mid-Term Budget Review will likely be more of a policy signalling exercise than a full-blown fiscal overhaul,” said economist Dr Prosper Chitambara. “The government still heavily relies on taxes like the IMTT to finance operations. Any significant tax relief may have to wait until the 2026 National Budget.”

Still, economists insist that Zimbabwe’s long-term economic sustainability depends on expanding the tax base—particularly by formalising the informal sector—rather than overburdening the few remaining compliant businesses.

“The cost of doing business must be reduced to encourage formalisation,” said economist Malone Gwadu. “There must also be targeted support—like fee holidays for miners, retooling support for manufacturers, and incentivised investment in agriculture, especially after this season’s successful harvest. Treasury must resist the temptation to over-tax productive sectors.”

The debate over tax reform comes as Zimbabwe seeks to stabilise its economy following the introduction of the Zimbabwe Gold (ZiG), a new gold-backed currency. In a significant endorsement, the International Monetary Fund (IMF) has backed the ZiG as a potential single currency—on condition that authorities maintain fiscal discipline, accumulate reserves, and undertake broad institutional reforms.

The IMF said it views the ZiG as a potential “anchor for stability,” but stressed that its success depends on consistent policy implementation and a credible monetary framework.

In practice, however, the US dollar remains dominant in most transactions. Civil servants are still paid in both currencies, and most government tenders remain denominated in USD.

Business groups have also called for a review of the foreign currency surrender requirements, which currently oblige exporters to liquidate 30% of their proceeds into ZiG at the official exchange rate.

“In the absence of a fully liberalised exchange regime, surrender requirements are a disincentive,” ART said. “They reduce export profitability, deter investment, and create inefficiencies. We urge authorities to lower the thresholds and improve the timing of ZiG disbursements.”

Exporters are also facing headwinds from illicit competition, with smuggling through porous borders estimated to cost Zimbabwe between US$500 million and US$1 billion annually. Industry leaders warn that counterfeit and smuggled goods are flooding the formal market, displacing local products and undermining domestic job creation.

The mining sector—which contributes 83% of Zimbabwe’s export earnings and 73% of foreign direct investment—is also alarmed by potential new taxes under discussion, fearing they could threaten the sector’s viability in an already difficult operating environment.

“There must be clarity, predictability, and consistency in mining taxation,” said a senior executive from the Chamber of Mines. “Zimbabwe’s tilt toward resource nationalism risks deterring long-term capital if not managed carefully.”

ZimTrade board member Josephine Takundwa also urged Treasury to prioritise restoring confidence and cutting business costs in the upcoming review.

“The cost of production in Zimbabwe remains high, largely due to dollarised labour and compliance charges,” she said. “Labour alone accounts for more than 35% of production costs. We don’t expect immediate tax abolition, but a phased withdrawal of the IMTT would be a step in the right direction.”

Takundwa also called for targeted interventions to develop value chains, improve logistics infrastructure, and enhance trade facilitation.

With business closures mounting, disposable incomes shrinking, and public trust eroding, expectations are high that Professor Ncube’s Mid-Term Budget Review will chart a credible path toward economic recovery and demonstrate Treasury’s reformist intent.