eBusiness Weekly
The 2023 National Budget yesterday has no giveaways for the business sectors, but its severe tightening of tax collection and increases in penalties for delays, plus the tightening of rules enforcing registration for tax, does mean that increasingly businesses are on a level playing field, rather than having some compliant and others making money by dancing around the edges.
While no taxes came down, the single tax that rose, VAT, rose marginally from 14,5 percent to 15 percent. Previous changes in taxes, such as the consolidation of the levies on fuel to a single strategic reserve levy, will be placed in the finance legislation.
Minister of Finance and Economic Development Mthuli Ncube does admit that despite the considerable improvement in the ease of doing business in recent years, he wants to see a lot more progress, and is willing to budget extra funds for the Zimbabwe Investment and Development Agency to do this, and in particular to upgrade the ICT so make interactions with business smoother.
The delays for acquiring particular licences and permissions are still too long, but for these and other reasons Prof Ncube wants a lot more e-Government. Besides making it easier to interact with the Government such a move also narrows the opportunities for corruption, presumably on the ground that a computer cannot ask for a “present” and cannot delay something until offered a little extra.
It is very obvious that low inflation and stable exchange rates remain at the forefront of Government management. Here the Minister is starting with low monthly inflation, just 3,2 percent last month, and an exchange rate that sees just a 15 percent premium by the black market on the official rate, basically parity for all practical purposes especially once that retailer’s premium is included.
The determination to maintain low inflation and stable rates is apparent. For a start the Reserve Bank of Zimbabwe has been set a target for monthly inflation of 1 to 3 percent, and has to whatever is required, so long as it is legal, to maintain that, so interest rates when the eventually come down are likely to come down slowly.
An effort to curb rises in money supply, now after speculative borrowing was hammered and local currency liquidity dried up, comes largely from the growth and revaluation of the ever-larger foreign currency deposits in private hands. Here there will be wide-ranging consultation on how export incentive percentages are calculated, or other measures that will have the equivalent effect of retaining less overall.
The stable environment is obviously a worthwhile goal, and the effectively zero change in the tax structure, except for higher penalties for the lax or dishonest could have been expected.
But this determination to collect every dollar due in taxes should not be taken lightly. The full fiscalisation of VAT will be intensified, and made easier. The easier bit comes from the recognition that the required equipment is not cheap and often breaks down. The solution is a scheme using applications on a phone or computer, with just one extra item needed to handle and print the VAT receipts.
But those who have not been charging VAT in the correct currency, have not been banking VAT, have not been declaring cash sales, and have generally been messing around will be in trouble, financial trouble. Unfiscalised VAT will now be considered as a profit for tax purposes, not a deduction, and that is only one of the examples the Minister gave as be moves to receive all the dollars Parliament has let him have.
Where the opportunities arise are in the policies and the actual budget allocations.
A major policy thrust is to boost local production and to involve the private sector more aggressively in this process, creating more ties between farmers and agro-industrial businesses and more ties between the major companies and the micro, small and medium enterprises.
So we are seeing the ring-fenced duty free imports of milk powder and raw cheese being reduced dramatically over the next three years, with the companies concerned doing far more to create the ties they need with dairy farmers and replace the product imports with direct purchases of raw milk.
The Government will also want to see more financing of farmer inputs coming from the private sector, with the Government retaining the infrastructure spending, partly to spread the burden but also to use the private sector’s expertise to improve the yields for each dollar invested. While volumes of farm output are rising, Zimbabwe still has very low percentage yields.
Every business will need to examine, in some detail, the actual spending planned, both in the capital budget and for goods and services in the current expenditure. This is money that will largely be spent in the private sector, and this is where Zimbabwean businesses can get good orders, although it has been clear not outrageous profits.
Minister Ncube does spatter his budget statement with references to due diligence, audits, and value for money, and makes it very clear that the whole system of State procurement at the central Government level and at the local level when spending devolution funds will be seriously tightened. Effective committees are being put in place in each purchasing unit, and reckless behaviour will be criminalised.
On the other hand the majority of suppliers should not be frightened off. When there was that major shift to due diligence a few months ago around 70 percent of suppliers were rapidly passed as honest and paid, so the Government is obviously not being unreasonably, just wanting the dubious 30 percent to join the majority or stay clear of Government procurement.
While capital spending decreases slightly as a percentage of the budget, it actually rises from $454,7 billion in the revised budget for this year to $656,5 billion next year, and effectively doubling the following year.
That is a lot of money, and those who wish to bid on the slew of contracts that will be coming up needed to know what the Government will be buying and will want to be set up to mount bids that have a good chance of winning. The expenditure covers a lot, but construction, farm mechanisation, ICT equipment and services, and buses and trucks chew up probably the majority.
This is spread geographically as well as across ministries. For example, one programme is to see every school with some ICT, internet connectivity and a solar power supply to operate the equipment. That comes to a surprising number of computers, modems and solar panels.
Local business needs to remember that increasingly the Government prefers to deal with local businesses, so long as they are honest and offer value for money.
The other interesting source of business comes from the rise in the staff costs. A few thousand extra teachers and nurses is not likely to make any difference, especially with the staff freeze in non-critical sectors, So the rise in real terms comes from better pay and non-monetary remuneration.
The staff costs bill rises from 44 percent to 52,4 percent of total spending. While this will not in some early giant jump in salaries it does mean regular pay rises. More importantly, from a business point of view, when around half of all taxes end up in civil service pockets they will be spending that money, and that puts a lot of money into the hands and tills of business people.
Supermarkets and other sellers of essentials will win, but every business needs to think carefully how to attract, satisfy and retain the custom of a very large slice of the middle income bands in the Zimbabwean economy. Even more than their bosses, the mass of civil servants are going to insist on value for money, so one again the thrust needs to be on that factor.
