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Govt hikes income tax

ZIMBABWEANS face a steep tax rate after government this week raised tax brackets that will take more money from the workers who are already struggling to make ends meet.

In a statutory instrument published this week government raised the tax bar from 47,5% to 60% for those earning $20 billion and above.
Zimbabwe has one of the highest tax regime in the world but has very few social incentives that benefit the people. The average in the region is 35%. 
The new rate means that a worker earning $20 billion will be levied an effective 63% by the taxman which amounts to $13,1 billion. This figure includes the Aids levy which government deducts from every worker in Zimbabwe.
The worker will be left with $7,9 billion before pension and medical aid contributions are deducted.
Government also reviewed the income tax free threshold from $30 million to $300 million.
Tax experts however said the while government pretended to be helping the worker it was in fact taking a huge portion of their wages by raising the tax brackets.
Even then the $300 million tax free threshold does not translate into anything much in real terms.
The $300 million is enough to buy two bars of washing soap ($130m), 1kg of salt ($35m), two tablets of bathing soap ($108m) and a loaf of bread on the parallel market.
The list of what it can buy will be reduced by next week because of inflation which reached 165 000% for the month of February. 
According to the new tax thresholds, a worker earning between $300m and $800m will pay 25% in income levy.
This is despite that the amount is not enough to meet basic requirements of the month like transport, food and rent.
The civil service, which accounts for the majority of the working class, would fall into the first four tax bands (refer to table) where the highest paid government employee earning up to $5 billion will be taxed at 47,5%.
Tendai Mavhima, a tax management consultant, said the minimum tax-free threshold would not help low income earners reeling from the country’s economic woes.
“On paper, it appears there are changes but in real terms there is no change,” Mavhima said.
“The minimum tax-free threshold is only enough to pay a six day trip for a worker. On the other hand those earning $20 billion plus will be left with no option except to start small income enterprises where there are charged 30% of tax after deduction of operating expenses.”
A senior tax expert with an international auditing firm described the reviews as “immaterial and ridiculous.”
“Most domestic workers are earning much more than the minimum tax free threshold and taxing their salaries is ridiculous,” said the expert.
“To have a coherent approach to the setting of the amount of taxable income falling into the 0% threshold, the brackets upper limit should be set at two thirds of the poverty datum line figure of the budget.”
“Soon everyone will not be exempted from tax unless there are progressive economic reforms,” said the tax expert.
Genesis bank group economist, Brains Muchemwa, said the increased tax-free threshold would only increase disposable income to lower income workers if inflation is managed.
“Ordinarily, the increased tax-free threshold would have the impact of stimulating expenditure for the lower income groups, but with the high levels of inflation, that stimulus will not be there,” said Muchemwa.
He added that the upper tax bands discouraged productivity in the economy.
“The upper end tax bands of between 50% and 60% on the other hand discourage worker productivity in the economy,” Muchemwa said.
“Basically it’s a sign that the fiscal position is fragile and the government is looking for ways of increasing the revenue, more so when we forecast that the budget deficit for this year could be anything above 15% of GDP.”
According to Muchemwa, low productivity, divestment at corporate level and high unemployment has “strangled real government revenue” over the years.
This has forced to government to rely on increasing personal tax.
The government has also been borrowing from the domestic market and printing money to cover its bloated expenditure. 

By Bernard Mpofu

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