Eric Chiriga/Rodwin Chirara
IN a major climbdown, the Ministry of Finance has agreed to reduce the recently introduced capital gains withholding tax charged on marketable securities from the initial 10% to 5
%, bowing to pressure from brokers who had boycotted trade on the Zimbabwe Stock Exchange (ZSE).
This move is expected to restore normal trading on the bourse after 18 days of insignificant trade.
Brokers had stopped trading on the bourse in protest at the reintroduction of the capital gains withholding tax on marketable securities at a rate of 10% in the mid-fiscal policy review of August 16.
The introduction of the capital gains withholding tax resulted in serious resistance by stockbroking firms, resulting in buyers boycotting the stock exchange.
The new 5% will be with effect from October 1.
“To allow the ease of administration, the capital gains withholding tax on marketable securities is now collected on a gross basis and at 5% that does not compromise the revenue collection targets,” a statement issued by the Ministry of Finance, the Zimbabwe Stock Exchange (ZSE), and the Zimbabwe Revenue Authority (Zimra) said.
When asked for comment on the developments at the bourse at a CZI conference in Nyanga yesterday, Finance minister Herbert Murerwa blamed poor consultation for the impasse.
“This was a regrettable problem. There was poor consultation from the beginning,” he said.
Murerwa said the issue would be adequately addressed in the coming 2006 budget.
“There will be fuller consultation and a team will be dispatched to South Africa to see how the tax system works.”
The Finance ministry has also agreed that insurance companies and pension funds will apply 40% of their net monthly cashflows to purchase prescribed assets. This will be with effect from November 1, but will be reviewed annually.
“In order to facilitate the implementation of the prescribed asset ratio, the industry and the Ministry of Finance have agreed that insurance companies and pension funds will apply 40% of their net monthly cashflows to purchase prescribed assets,” said a statement issued by the Ministry of Finance in conjunction with stakeholders in the insurance sector.
In his mid-term fiscal policy review, Murerwa announced that the insurance and pensions industry will have to hold prescribed assets of 25% for the short-term insurance, 30% for the long-term insurance and 35% for pension funds at market value.
Pension funds – the biggest investors on ZSE – have been calculating the 35% based on book value.
Murerwa said pension funds must calculate these assets based on market value, a move traders said would force companies such as First Mutual and Old Mutual to offload shares to raise money to buy bonds and bills and meet the required percentage.
After the announcement of the prescribed asset ratios, Emmanuel Munyukwi, the chief executive of the ZSE, predicted that pension funds will be forced to sell shares to meet the shortfall created by the new requirement, but added, no one in the market has the capacity to absorb the shares.