Biti said that in the current year, corporate tax had brought in only 4% of total revenue, but he hoped improved compliance as a result of the tax cut would increase that figure to 10%.
He also announced a reduction in some investment allowances that would lead to increased revenue. Describing Zimbabwe as “a sleeping giant in a deep hole”, Biti said: “We are slowly getting out of this hole but this would require acceptance of a national vision by all, as well as resolution of the political problems facing the nation.”
Although Zimbabwe had a number of large operating mines, revenue from mining tax was negligible, he said. He increased royalties on precious metals –– gold and platinum –– from 3% to 3,5% while also reducing the size of mineral exploration concessions from 65 000 hectares to 20 000 hectares and raising the levy payable during an exploration period.
To foster domestic processing of chrome ore, a new export tax of 15% was imposed on exports of unprocessed chrome.
The top rate of personal tax was cut to 35% from 37,5% while the basic threshold below which no tax is payable was raised slightly to $160 a month from $150 previously.
Biti also extended the suspension of duties on imported foodstuffs for a further six months until mid-2010, while reducing the duty on smaller imported motor vehicles to 25% from 40%. Excise duties on spirits were doubled to 40% from 20%.
After eleven years of declining output, he forecast GDP growth of 4,7% in 2009 accelerating to 7% next year. He raised his 2009 growth forecast from 3,7% to 4,7% as a result of strong 10% growth in agriculture, 8% in manufacturing and 6,5% in tourism.
Mining growth, almost entirely due to gold, was only 2%. Gold output rose 14,6%.
The banking sector had recovered strongly following dollarisation of the economy at the start of 2009 with total bank deposits more than doubling from US$475 million in April to just over US$1 billon at the end of October.
But Biti criticised banks for conservative lending policies, saying that bank loans of US$501 million reflected a loan-to-deposit ratio of just 50%, well below the 80% target that the government had set.
He warned the banks that if they failed to increase lending the government would not hesitate to use its powers under the Banking Act.
He said because of dollarisation and fiscal consolidation, inflation was forecast to average minus 5,5% in 2009 compared with 231 million percent in July 2008 – the last month for which official inflation numbers were available during that year.
In 2010, inflation would turn positive again and was forecast to average 5,1%. The minister said exports would fall 17% in 2009 to $1,02 billion but gave no further balance-of-payments details.
In the ten months to October, government revenue was $685 million or 87% of the budgeted target while spending fell short of budget at $641 million.
The minister said revenue inflows had grown very rapidly in the first half of the year before levelling off at around $90 million a month since July. Two thirds of revenue came from VAT and customs and excise taxes.
Biti said that 63% of government spending was on employment costs, 43% of that being public service wages. Capital spending was tiny at only 5% of the budget. Although he said such a high level of wage costs was unsustainable, he admitted that 2010 employment costs would still exceed 60% of total spending, excluding foreign aid.
In 2010, government revenue was forecast at $1,44bn (26% of GDP) while expenditure was projected at $2,25 billion (40,5% of GDP), leaving a budget deficit of 14,5% of GDP or $810 million, to be funded from foreign aid and drawing down the International Monetary Fund (IMF) allocation of over $510 million in special drawing rights in September this year.
Although the IMF has urged the government to use the SDR allocation to replenish its foreign reserves, Biti said $210 million of the allocation would go towards infrastructure investment while $50 million was being allocated to essential inputs for small-scale farmers.
Biti ruled out an early return to the Zimbabwe dollar which was displaced by dollarisation at the start of 2009, saying that the current system of multi-currencies would be retained, but in 2010 the government would debate designing an optimum currency policy for the country. — FT.com
By Tony Hawkins