Zim braces for tough 2025 budget

STAFF WRITERS

Finance, Economic Development  and Investment Promotion Minister, Professor Mthuli Ncube faces his sternest test yet as he presents the 2025 national budget today.

The country’s fragile economy, sets  a daunting backdrop for the budget speech, which must address a litany of issues amid mounting skepticism.

The budget, to be presented at the Parliament Building in Mt Hampden, comes as Zimbabwe grapples with unrelenting  energy crisis, a staggering US$21bn debt overhang, unsustainable recurrent expenditure, a tax base increasingly eroded by the prevalence of  informality.

Compounding these challenges are crumbling healthcare, escalating poverty levels and record high unemployment, among many other problems.

Businesses are increasingly weighed down by soaring cost of production, currency instability and rising taxation, leading to an uptick in closures.

Consequently, the country’s tax collector, the Zimbabwe Revenue Authority (ZIMRA) ,  is under pressure to expand its tax base by integrating the informal economy into the fold, an ambitious tax task that risks alienating already overburdened tax payers, creating a delicate balancing act for Treasury.

Yet, industry players argue the current tax regime discourages economic formalisation and exacerbates business costs.

The 2%  intermediated Money Transfer Tax (IMTT) , a key revenue source for the government, has been  particularly contentious.

Both the Zimbabwe National Chamber of Commerce (ZNCC) and the Bankers Association of Zimbabwe have called for its reduction or removal, citing its destructive impact on electronic payments, financial inclusion and the ease of doing business.

“The goals of financial inclusion initiatives will not be reached with IMTT in force. The IMTT was reported to have contributed 3.4% to the total revenue during the first half of the year.

Comparatively, IMTT contributed about 8% of the revenue during the first half of 2022 and 6.7% during the same period in 2023. The IMTT coupled with other taxes charged on bank transactions such as withdrawal levies force people to transact hard cash thereby  reducing the amount of cash collected via such means,” ZNCC said in its position paper to Treasury.

The Bankers Association of Zimbabwe (BAZ) echoed these concerns, arguing that the tax has spurred disintermediation  by encouraging cash transactions over formal banking.

 “We advise the Treasury to reduce IMTT on both ZiG and the US$ transactions. The rate of 2% on electronic transactions has exacerbated disintermediation, promoting use of cash by the transacting public and discouraging the use of formal channels. IMTT increases the cost of doing business therefore discourages informal businesses from conducting business formally,” BAZ said.

BAZ  also emphasised the need for comprehensive debt relief and fiscal disciple to stabilise the economy.

“The government 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 debtors,” BAZ said.

With Zimbabwe’s credit rating in freefall and international funding options closed , the 2025 budget must provide a clear roadmap for stability and growth.

Yet, for many the odds appear to be insurmountable.

The mining sector, a cornerstone of Zimbabwe’s economy, is similarly burdened by high taxes and levies.

The Chamber of Mines of Zimbabwe (CoMZ)  has urged the Treasury  to rationalise the fiscal framework, which is described as suboptimal , citing high royalties, beneficiation taxes and excessive fees,  amid falling commodities prices.

“The fiscal framework for the mining industry is suboptimal, citing a multiplicity of taxes, high royalty, beneficiation taxes, special capital gains tax, high fees and levies. The miners indicated that the effective tax for the industry is too high and should be addressed,” CoMZ said.

Enock Rukarwa, an investment expert, noted the importance of  reducing government’s role in non-public operations.

“The current tax regime locally is already elevated, in terms of its burden to formal business operations. However, it’s unfortunate that we have a government that is also grappling with funding its construction projects, agricultural subsidies and power related expenditures.

An efficient way of taxing the informal sector or promoting economic formalisation should be a key theme for the 2025 national budget to broaden the taxable market.

“Another way of dealing with government capacity issues in terms of economic involvement is to reduce its hand for private participation on non- public goods and semi-public goods. Public private partnerships and Built -Own -Transfer arrangements are low hanging fruits to soften tax appetite and capacity issues from a government perspective,” Rukarwa told Business Times.

Economic analyst Victor Boroma said there is  a  need to cut non-core government expenditure, especially foreign and domestic travel costs.

“This reduces the need to abuse central bank overdraft facilities, print money or other inflationary financing methods.There is also a need to declare the country’s total and up to date public debt. Furthermore, there is a need to table a more sustainable Public -Private Partnership (PPP) to facilitate infrastructure funding by private players.”

From his remarks at the structured dialogue  on  Monday this week, Professor Ncube hinted that  he will not remove the 2% IMTT as it helps  the fiscus on revenue collections.

Perennial loss-making State-Owned Enterprises (SOEs) described as fiscal black holes, remain a drain   on the economy.

Calls for their privatisation grow louder, though analysts warn that few investors will find value in their current state.

The current economic challenges have left  businesses in distress . This has left industry and commerce at crossroads resulting in companies reducing production capacity.

Residents are also feeling the pinch of economic woes and said they expect nothing out of the ordinary but fear more taxes and resources allocated to appease mainly war veterans and traditional leaders with less to expect on critical issues.

Ordinary Zimbabweans  face deteriorating public services and fear further tax  hikes in a budget they say is unlikely  to deliver transformative change.

Harare Residents Trust Director, Precious Shumba, said there were fears the government will prioritise the interests of politically-connected groups at the expense of service delivery issues.

“Our major concern is that the government may focus on appeasing traditional leaders and other aligned groups rather than addressing the urgent issues of water and sanitation,” he said.

This was in apparent reference to the pampering of traditional leaders of late by the government that has seen them receiving vehicles and other resources to appease them.

“Over the years, we have seen taxes increase without corresponding improvements in our daily lives,” Shumba said.

“Our hope is that the government allocates more than 5% of total revenues to devolution funds as stipulated in the constitution.”

People who spoke to Business Times yesterday echoed the same sentiments saying there shouldn’t be higher expectations.

“The budget is just a paper presented yearly with no real impact on the economy just harsher taxes,” Primrose Muripo said of today’s budget.

“Same old, same hot air. More taxes on people who barely afford to live,” Natalie Machado said.

Victor Dhlamini predicted more taxes saying: “Let me guess, everything will be taxed heavily including the very air we breathe.”

Others predicted an increase in toll fees adding that this has become an easier way for the government to make money of late.

For Lovemore Chiweda, today’s budget could be an opportunity to address a number of issues.

“If the government prioritizes investments in innovation, infrastructure, and small-to-medium businesses, we could see real progress,” he said.

Professor Ncube has signaled a focus on resilience, particularly in addressing climate-related shocks, supporting agriculture and deepening  economic transformation  under the  National Development Strategy 1.

“We are focusing on resilience because we have been impacted by climate changes this year, so investing in sectors like irrigation, more in drought-resilient seeds and cropping, conservation agriculture in the form of Pfumvudza/Intwasa, and also focusing on insurance products for farmers: all those are key aspects of building resilience,” he said.

“2025 national Budget will focus on building resilience to deepen structural economic transformation and consolidate gains achieved under the National Development Strategy 1 (NDS1),” he added.