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New Tax Band Not Effective

GOVERNMENT’S new tax-free threshold announced this week will not help the struggling workers because it has come too late analysts said.


Analysts said the new tax-free thresholds amounted to deception by government because of inflation that is currently at 1 700 000%.

Government reviewed the tax-free threshold to $25 billion from $1 billion. The figure translates to less than a month’s transport costs. In real terms, it is less than the price of two litres of cooking oil, which now costs $27 billion from about $15 billion at the beginning of last week.

According to the new bands, those earning over $300 billion will now be taxed at 47,5%. But analysts are calling for the tax bands to be adjusted in line with the inter-bank exchange rate.

Earlier this month the National Incomes and Pricing Commission recommended minimum monthly salary level of $100 billion in line with the inter-bank rates.

As at May 15 when the thresholds were set, the Zimbabwe dollar was trading at $235 million against the US dollar. This rate has since shot up to about $3 billion on the inter-bank market and there is speculation that the figure could reach the $5 billion mark by June 27.

On paper the reviewed tax-free band represents a 25-fold jump but analysts argue that the figure is still insufficient. Tendai Mavhima, a tax expert said there was need to constantly adjust the tax-free thresholds in line with the changing economic environment.

“These rates must be self adjusted and they will automatically change on a daily basis due to the use of the inter-bank rates,” said Mavhima.

“There are a number of other very important measures, which should have been considered. Exempt
portion of bonus is still pegged at $75 million yet companies are now paying monthly or quarterly bonuses.

Submissions have also been made to consider tax exemption on transport and housing allowances.

In a related matter Kingdom Financial Holdings has taken a head-on approach to inflationary pressures by introducing fortnightly salaries to employees.

Reserve Bank governor Gideon Gono last week was quick to disapprove the indexing of salaries and wages in line with the inter-bank rates saying the decision was “patently flawed”.

“More precisely, what the NIPC is advocating, that is, indexing wages and salaries to the exchange rate, is not compatible with policy paradigm inclined towards price controls,” Gono said.

Independent economist John Robertson said the new tax-free threshold is “inadequate” adding that indexing salaries and wages was a “vicious cycle” resulting from scarce foreign exchange and suppressed capacity utilisation of industry.

“The new tax bands are a reflection of government’s embarrassment on failed policies,” Robertson said.

“Indexing salaries and wages to the inter-bank rate is just a response to the problem. Our inability to produce and policies deliberately chosen to discourage investors are the cause of this vicious cycle.”

By Bernard Mpofu

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