THE Institute of Chartered Accountants of Zimbabwe (ICAZ) has welcomed the recognition given in Finance Minister Herbert Murerwa’s budget statement to the need to restructure taxation in the light of the hardships caused by inflation.
ICAZ said if the economic projections in the budget statement materialised then an economic turnaround would become a reality. However, it cautioned that some of the projections might be over-optimistic.
An institute spokesperson said ICAZ believed the measures proposed by the minister would bring down inflation significantly in 2006 but not to the level of 50 to 80% by December 2006 that the minister was aiming for, as they would take time to achieve results.
“The budget statement is very pleasing in that it gave substantial recognition to the need to restructure Zimbabwean taxation so as to recognise the widespread hardships caused by inflation,” the ICAZ spokesperson said.
“Moreover, if the economic projections in the budget statement materialise, then the long awaited economic turnaround will become a reality.
“However, some of the economic expectations do not readily reconcile with private sector perspectives and awareness of prevailing circumstances and, therefore, the projections must be viewed with caution, as they may well prove to be somewhat optimistic,” he said.
“In particular, the anticipation of a growth in the agricultural sector of 14,8% is founded upon an expectation of an increase in production of maize by 33%, and cotton by 26%, but does not recognise forecast
losses of tobacco production of about 30% and little likelihood of growth in the dairy, beef, sugar, citrus, tea, coffee and other agricultural sectors.
“The minister also foreshadows increased manufacturing output but that will be contingent upon assuring export viability through exchange rate movements aligned to inflation-driven purchasing power parity,” said the spokesperson.
“The minister’s growth projections also assume an upturn in tourism but that is unlikely to materialise, unless Zimbabwe demonstrates unmitigated enforcement of law and order, especially directed towards halting farm invasions, harassment of farmers and violent murders such as occurred in Norton last week.
“The measures contemplated by the minister to contain and control governmental spending, to ensure enhanced productivity by parastatals, to curb corruption and to interact with the Reserve Bank’s monetary policies are commendable and will, if vigorously pursued, substantially reinforce the Reserve Bank’s targeting of inflation through monetary policies,” the ICAZ said.
“However, ICAZ nevertheless regrettably believes that a targeted year-on-year inflation rate of 50% to 80% cannot be attained by December 2006, as many of the remedial measures to be pursued in the war against inflation will, inevitably, take time before achieving results.
“Nevertheless, ICAZ commends the minister on his dynamic intentions to drive inflation downwards, including his strong intent towards parastatal reform and a market-force driven economy, and believes that, hand in hand with monetary policies, these will bring about a significant decrease in inflation in 2006.
“On the taxation front, the minister’s reduction of various taxes will be widely welcomed. In particular, the lifting of the tax threshold for individuals from $1,5 million per month to seven million dollars per month, the widening of the tax bands and the lowering of the maximum rate payable by individuals from 40% to 35% will be well received.
“They will give some boost to the economy, through the resultant increase in disposable income.
“However, as seven million dollars per month is still below the poverty datum line for an average family, to some considerable extent, and as inflation will continue to a major extent in the foreseeable future, the minister will have to consider again having a mid- year review of the threshold and bands in 2006.
“Reducing Value Added Tax back to 15%, increasing tax credits and deductions, and many of the other taxation proposals of the minister are also very well received.
“They evidence that the minister has gone out of his way to respond positively to the wide ranging private sector inputs and submissions from representative bodies.
“He has done so not only by addressing taxation rates and revenue gathering measures, but also with a view to simplifying and streamlining Zimbabwe’s direct and indirect taxation systems,” the spokesperson said. – Own Correspondent.