Government mulls tax on financial sector


Shakeman Mugari

GOVERNMENT is considering the introduction of a further tax on the financial sector during the upcoming budget in a bid to mop up revenue to sustain its expenditure.
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According to sources privy to the move, the cash-strapped government will intensify its efforts to arm-twist the financial services sector into funding its expenditure.


The tax, if introduced, would be charged on non-interest income of banks.

It will target banks, which until now have been making millions from non-interest income which is sometimes indicated as “other income” in financial results.


The non-interest income is the amount made from transactions which are not core to the banking business.


Zimbabwean banks, battered by negative interest rates and galloping inflation, have been making millions in non-interest income.


Although the details are still sketchy, sources this week confirmed that the proposed tax on banks was one of the many methods that government is considering to bolster its shrinking tax base.


The revenue base for government has been waning over the last three years on the back of company closures and official unemployment, currently hovering around 70%. Corporate tax has also been drastically reduced.


A report released by the Confederation of Zimbabwe Industries last month revealed that 250 companies had closed shop since last year. About 400 companies folded in 2001 to bring the total to 650 companies that have shut down during the last two years.


Tobacco sales, which until now had sustained the ailing economy, have also plunged to the lowest ever putting government under further strain.

Zimbabwe this year managed a paltry 81 million kilogrammes, about 50% of what was achieved last year.


Analysts this week said there was reasonable ground to speculate that the budget could see the introduction of further tax especially in the financial sector.


“The market is on the watch for such a tax especially for banks. This is a broke government which will do anything for money including reducing the viability of any sector,” said a market analyst.


Government has often blasted banks for failing to fund the controversial agrarian reform.


Bankers say tax could significantly erode their earnings.


“We have heard there is something like that coming. Most banks have been making huge profits from non-interest income. The tax will significantly erode the earnings of the financial sector,” said a senior official at a bank.


The Minister of Finance and Economic Development Herbert Murerwa could however not be reached for comment on the issue.

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