THE 1% capital gains withholding tax (CGWT) charged on the equities sell side is choking investors, eroding their confidence in the Zimbabwe Stock Exchange (ZSE) and should be removed, the local bourse has said.
ZSE acting CE Martin Matanda says although the bourse welcomes the exemption of trade securities from the recently introduced government tax, the exchange remains the most expensive and least attractive market in the Southern African Development Community.
Introduced in 2005, the tax is levied on marketable securities and has been reviewed up and down over the years.
He told businessdigest this week that there were a number of measures that needed to be taken to make the ZSE attractive.
Zimbabwe is currently handicapped by hard currency shortages and inability of banks to make timely foreign currency payments, including dividends and proceeds of shares sold due to foreign investors.
“The ZSE has also been lobbying for years now to get the capital gains withholding tax (CGWT) of 1% which is levied on the equities sell side to be removed. The CGWT is unique to ZSE and is not found in any other market in the Sadc region. This has led to ZSE to be the most expensive market in Sadc. This is adversely affecting the investors’ confidence and thus making the market less attractive,” he said. “We will continue lobbying efforts to have the 1% capital gains withholding tax to be abolished; the problem of shortage of foreign currency and resultant payment delays of dividends and proceeds of share sold cannot be solved by the ZSE although we will continuously look for innovative solutions in consultation with other stakeholders to mitigate this drawback.”
While some foreign fund managers have appetite for government securities for their clients’ portfolios, Matanda said they do not have access to such securities through the ZSE trading platform.
Although the ZSE trading system is capable of trading debt instruments, he said it has not listed government bonds as there are policy issues to be resolved first.
Matanda said the ZSE will also continue working with other stakeholders to establish and develop a secondary market for fixed income instruments, with particular emphasis on government securities.
“We believe that the sum of these measures will help us improve our market share for foreign investors’ funds,” he said.
Meanwhile, he also said the ZSE would continue to see high levels of market volatility until the policy issues have been clarified.
The all-share index has gained 52% since October 1 2018 when the new policy measures were announced.