Kudzanai Sharara and Malvern Nkomo
Tax measures announced by Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube in his 2024 National Budget are just proposals subject to debate and approval by Parliament which leaves room for improvements and to make the correct adjustments.
In his $58,2 trillion budget last Thursday, Mthuli proposed a raft of tax measures, drawing an outcry from economic agencies, analysts and political critics.
Commenting on social media platform X (formerly Twitter) Economist Professor, Gift Mugano, described the budget as “anti-people and ant-industry”.
He called for the removal of VAT on basic commodities, the scrapping of the sugar tax, the wealth tax as well as scrapping the proposed ban on traders from sourcing directly from manufacturers.
The Zimbabwe National Chamber of Commerce, in its post-budget analysis said the 2024 National Budget was centred on domestic resource mobilisation rather than creating a conducive environment for the private sector to flourish.
“The risk is that the more businesses and households are taxed, the lesser will be the revenue generated,” reads part of the ZNCC post-budget analysis report.
Debate and criticism were also on the wealth tax, toll gate fees hike, sugar tax, as well as the move to compel wholesalers and manufacturers to sell only to licensed and tax-compliant operators.
Mthuli, has, however, welcomed the debate with regards to some of the tax proposals in his 2024 National Budget, in a bid to improve Government’s revenue inflows to support infrastructural developments in the economy.
In the budget, Mthuli proposed to increase toll fees on premium roads including the Harare-Beitbridge, Plumtree-Mutare roads, with effect from January 1, 2024 and a levy of US2 cents for a gramme of sugar in beverages.
Mthuli said revenue derived from the increased toll gate fees will be remitted to the Consolidated Revenue Fund and to further improve on transparency and accountability of funds the Zimbabwe Revenue Authority (ZIMRA) will install a Virtual Fiscal Solution at all tollgates.
Virtual Fiscal Device Management Systems are a new generation of fiscal sales data collection solution that simplifies the process of tax collection for tax authorities and enhances transparency while leaving minimum space for fraud.
Another proposal in his budget that also spiked debate is the introduction of a wealth tax at a rate of 1 percent of the market value of residential properties valued US$100 000 and above.
As Zimbabwe’s capacity to borrow from international financiers remains constrained and Mthuli emphasised the need to raise and mobilise financial resources towards providing basic socio-economic programmes while upholding a more equitable society without having to borrow.
In an interview on the sidelines of COP28 in Dubai recently, Mthuli said the exchange of views that is going on with regards to the proposals he brought to light, leaves room for improvements and to make the correct adjustments to these taxes.
“At this stage, these are all proposals and they will still be debated. We welcome the public debate. I welcome the public debate that is taking place out there and people are even giving us ideas on how to further fine-tune these proposals,” he said.
“We are concerned about issues of inequality and this is why wealth taxes are introduced. We are seeing increasing demands from urban areas needing support from the central government in terms of infrastructural development, the roads in the City of Harare and Bulawayo and other urban areas as well as the need to rebuild sewage systems, water reticulation and chemicals.
“We have to draw down a budget obviously from the central government to support the urban areas. So it will be good as well to use a part of this wealth tax to be able to deal with infrastructure interventions in urban areas,” said Mthuli.
It can be argued that wealth taxes can be used as a tool to reduce economic inequality by targeting the accumulated assets of wealthy individuals and these wealth taxes can provide a stable source of revenue to the Government for funding public services and other infrastructural development projects.
However, critics of wealth taxes raise concerns about their potential negative effects on savings, investment and economic growth. The starting threshold of US$100 000 is also considered too low given the values of houses in old suburbs such as Hatfield, Waterfalls, Malborough and others.
Issues around fraud, corruption and tax evasion are also some of the problems that might come with the introduction of these kinds of taxes where one might not be willing to pay according to how much wealth they would have accumulated.
“Currently in our proposal, those who are 70 years of age and above will not be liable for this tax, again that is up for debate as we are also aware that the average retirement age for the private sector and government is 65 and we will take into account all those things as we debate to come up with an appropriate cutoff age,” he said.
In efforts to restore the traditional supply chain, from the manufacturer and wholesaler to retailer Mthuli also proposed that only licenced and Tax Compliant operators procure goods from manufacturers and wholesalers.
“We want to make sure that the informal sector is netted in. We do not want the informal sector to be used as a conduit by some formal retailers who are trying to avoid taxes and we are going to plug the loophole,” he said.
ZNCC said its the local producers that stand to suffer from this “noble” idea in that they are restricted in terms of fully exploiting the supply chain and limited in terms of the customer base.
ZNCC argued that “given that these SMEs trade in hard currency, they can easily import goods from neighbouring countries.”
“The informal sector trades largely in cash and therefore, any Government policy targeted at mobilising resources from this sector has to be close to perfect otherwise, the unintended consequences would be suffocating and disadvantaging the already compliant businesses,” said ZNCC.
A budget should stimulate debate and if we all debate we will end up where we ought to be as a nation in a constructive way,” according to Mthuli.
The proposition to increase toll fees on premium roads means that it would cost more to travel on those roads given that there are limited alternative ways to commute like the trains.
However, Mthuli said the primary issue remains on infrastructure development and the revenue that will be collected will further boost the ongoing developments in infrastructure.
“We are still developing our infrastructure and these resources are meant to develop and maintain our infrastructure. It is not meant to drive people away from the roads or to say people must use alternative roads but it is about developing infrastructure in the first place.
“Government has spent resources already so we need to recover those resources and we are going to use the collected resources to further develop the infrastructure projects within the country,” he added.
Instead, he suggested that Government must “foster efficiency in procurement (eliminate exorbitant and unrealistic charges by service providers and contractors)- this will create massive savings. Government through its value-for-money principle is already doing that making huge savings, but resources are still not enough.
Prof Mugano also said instead of using the budget to fund roads/dams, there is need to implement innovative finance as new forms of financing infrastructure.
“Key instruments which Treasury may need to consider inter alia include toll fees (which is already in place), diaspora bonds and public-private partnerships.
Making a presentation at a post-budget breakfast meeting, Economist James Wadi, said the heavy tax burden will further entrench informalisation of the economy while the inflationary impact will rise because of high tax levels.
He said; “focus should be to grow the economy and enforce prudent use of financial resources collected.”
Another Economist, Joseph Mverecha, said while it is quite understandable that the budget should seek new revenue sources, “this should also be accompanied by visible expenditures cuts and expenditure prioritisation”.
Mverecha said compelling wholesalers and manufacturers to sell only to licensed and tax-compliant operators will lead to an overflow of middle men and a market for valid and fake Tax Certificates.
“A very rich rent seeking vein will emerge.
“The proposal will lead to shrinkage in the manufacturing sector, once barred from supplying the tuckshops – and also contraction in overall economic activity.
“The net impact is reduced economic activity, exports and lower real GDP growth,” said Mverecha