Budget must address key issues

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LAST week Zimbabwe’s parliamentarians participated in a workshop at Victoria Falls, with cost beyond the country’s fiscal means but was merited because of the important issues discussed there.The workshop concentrated on issues to be considered in the country’s 2014 budget, with special emphasis on enhancing substantial recovery of the economy, thereby progressively reducing the pronounced poverty and concomitant hardships of the majority.  Concurrently, the critical need to restore substance to the national fiscus (presently, to all intents and purposes, bankrupt) had to be considered by the delegates.

Eric Bloch Column

Two days later, the Minister of Finance Patrick Chinamasa announced the 2014 budget will not be presented to parliament this month, notwithstanding that traditionally the forthcoming year’s national budget is tabled before the legislators in November. Instead he intends to do so in December, or January 2014.

His motivation to delay finalisation of the Budget, he said, was to enable more extensive consultation than heretofore with the private sector, primarily targetted at identifying the  necessary measures to ensure the revitalisation of the economy.  His recognition of the need for such consultations should be applauded, and hopefully he and his fiscal personnel will give due recognition to the innumerable issues that will undoubtedly be identified by the private sector as being essential for the recoveryeverybody is yearning for.

Of the multitudinous fiscal matters which have repeatedly been highlighted by organisations such as the Zimbabwe National Chamber of Commerce (ZNCC), Confederation of Zimbabwe Industries (CZI), Association of Businesses in Zimbabwe, Chamber of Mines, Institute of Chartered Accountants of Zimbabwe, and numerous others, as well as by international bodies such as the International Monetary Fund, the World Bank, the African Development Bank, as well as many private sector individuals, some of the key issues are:

Zimbabwe desperately needs growth in its exports to generate much-needed income and to eliminate the negative trade balance which has been sustained by the country for too long, in addition to enhanced exports being a major contributant to the survival of businesses, the increase in employment, and general economic recovery. There is great urgency for government to reinstate and create meaningful export incentives, and to proceed with the creation of Special Economic Zones (which have been mooted for some time but have not yet materialised).  Such export incentives would not prejudice fiscal inflows for, in the absence of exports there are no revenues accruing to government in respect of the goods and services which can be produced for export.  Moreover, the stimulation of exports would result in greater numbers being employed, yielding to the fiscus inflows of income tax, as well as indirect taxes such as value added tax and import duties, resulting from more people generating income and expending such income.  Such additional trade volumes will also beneficiate the industrial and commercial sectors.

Considerable amendments are necessary to the structuring of Zimbabwe’s import duties.  On the  one hand, the importation of essential manufacturing inputs required by the manufacturing sector, and not available from Zimbabwean producers (which renders imports essential) should not be subjected to any import duty, for such duty renders the manufacturers’ costs greater than those sustained by non-Zimbabwean competitors and increases domestic selling prices above the means of the consumer population.

On the other hand, in cases where the imported goods would also be available from local producers, import duty should (save for imports from Sadc) be increased to levels which would result in total sale price levels being approximately the same as the locally produced goods, so that competition is not solely price related, but on timeousness of delivery and on quality.  This would contain production and consumer costs, and enhance the viability of the Zimbabwean producers.

It is wholly unjust that the income tax threshold for individuals is less than half of the  Poverty Datum Line (PDL), resulting in Zimbabwe over-taxing the poverty-stricken.  Bearing in mind that the monthly PDL, for a family of six, currently approximates US$570 dollars per month, and that the average such family has two income earners (although generally one is operating in the informal sector), the tax threshhold should, at the very least, be 60% of the PDL.  Hence the threshhold for the imposition of income tax on individuals should presently be not less than US$340 per month.

The draft of the proposed new Income Tax Act proposes taxation of all receipts, irrespective of the source and nature thereof (including such receipts as gifts, lottery prizes, and the like).  This would be extremely unjust, and in many instances will constitute double taxation, for the donors of the gifts will generally have been taxed on the income which funded such gifts.  The intended legislation will also become a major deterrent to Zimbabweans in the diaspora sending funding (in cash or in kind) to families and dependants in Zimbabwe, for the income which enables such funding will already have been taxed externally, resulting in a double taxation situation.

Moreover, if a diaspora-based Zimbabwean visits his family in Zimbabwe, even for only one day in the year, he is subjected, if the new legislation is proceeded with, to Zimbabwean taxation on his external income.   These are but a few of the many issues that Chinamasa must address, and more will be detailed in next week’s column.

One thought on “Budget must address key issues”

  1. Irikidzayi says:

    I think we must work towards widen the tax base increasing the number of businesses that pay tax. In my opinion operators in small scale mining and agricultural sectors must be registered as business that will pay taxes. I do understand that new farming operations maybe going through teething pains and as such taxation may not be the way to go now – however a low nominal land tax may be in order to prepare the farmers for a future in which they will pay tax.

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