Tax to be Paid in Foreign Currency

GOVERNMENT has proposed a raft of tax measures to be paid in foreign currency to finance the US$1,9 billion Budget for the current fiscal year.


Presenting the 2009 Budget statement to parliament yesterday, acting Finance minister Patrick Chinamasa announced measures that include “astute technocratic implementation” in raising US$1,7 billion in taxes.

The remaining US$200 million, Chinamasa said, would be sourced from “already committed cooperating partners”. Last year the Multi-Donor Trust Fund pledged to assist government in anticipation for re-engagement with the Bretton Woods institutions.

This figure confirms a leaked economic blueprint that was reportedly crafted by the Reserve Bank last year. The document, titled RBZ Comprehensive Recovery Plan, revealed that government would raise US$500 million through corporate tax, US$600 million in customs duties, US$200 million in value added tax (VAT), US$100 million in PAYE and US$150 million from fuel tax.

This means that government would continue financing the fiscus mainly from the domestic market after falling out with international financiers.

“To meet the operational costs of government including the new remuneration framework, it will be necessary that we introduce a number of tax measures targeted at mobilising resources in both local and foreign currency,” Chinamasa said.

Due to full dollarisation of the economy that gathered momentum following the licensing of retailers and wholesalers to trade in foreign currency last year, Chinamasa proposed remittance of company tax in hard currency.

“I therefore propose that corporate tax be remitted in the currency in which business is conducted with effect from 1 January 2009,” he said.

Turning to value added tax, government proposed payment of the levy in foreign currency from tomorrow.

He also proposed the suspension of customs duty payable in local currency at the ongoing interbank rate.

Instead, he recommended payment of duty in foreign currency arguing that some importers were settling duty through underhand dealings.

Chinamasa also proposed to widen the tax net to the informal sector by “embracing into the budget those currently evading tax in the informal sector”.

This would be done through the immediate introduction of presumptive tax paid on a quarterly basis. Independent statistics show that 80% of the country’s comatose economy has been informalised.

Below par performance in industry and the prolonged suspension of the Zimbabwe Stock Exchange have also resulted in government losing huge amounts of revenue.

Government also took on board proposals made by the Confederation of Zimbabwe Industries to levy carbon and fuel tax to petroleum companies now selling fuel in hard currency.

This proposal will see government levying US$0,22 per litre for customs duty, carbon tax and Noczim debt redemption for imported fuel.

Indexing income tax against the redundant interbank rate, Chinamasa argued, resulted in most foreign currency earnings being either heavily or under-taxed.

“In order to enhance the contribution of PAYE to tax revenue and uphold regional best practices in the taxation of incomes earned in the foreign currency, I propose to introduce separate foreign currency tax tables for employees remunerated in foreign currency with effect from 1 February 2009,” Chinamasa said.

With full dollarisation in place, Chinamasa further proposed the introduction of new tax bands and payment of income tax in foreign currency despite not revealing the tax-free threshold.

The CZI however in its fiscal policy recommendations advised government to effect a maximum tax rate of 20% for workers earning over US$1 000 per month.

The Consumer Council of Zimbabwe last November proposed a tax free threshold of US$250 citing exorbitant prices of goods and services charged by foreign currency licenced dealers.

BY BERNARD MPOFU

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