ZIMBABWE Stock Exchange (ZSE) calls for the removal of the punitive 40% capital gains tax on traders who dispose of shares in less than 180 days of acquiring them has fallen on deaf ears amid concerns that the move will make the bourse less attractive while threatening future listings.
Capital gains tax is a levy on the profit that an investor makes from the sale of an investment such as stock shares.
In May this year, the government introduced this among a cocktail of measures meant to curb what it called market indiscipline which has wreaked havoc on the exchange rate with the Zimbabwe dollar rapidly losing value against the greenback severely eroding disposable incomes.
Initially, it was 270 days but the government has since lowered it to 180 days.
But ZSE chief executive officer Justin Bgoni last week told businessdigest that they have been hitting brick walls in lobbying for the removal of the tax enacted through Statutory Instrument (SI) 103A.
“We lost the case and the government says the tax stays but it makes the ZSE unattractive and there is no doubt the government is against trading within six months. Unfortunately for us as an exchange we want to trade as much as possible because price discovery is better. On VFEX (Victoria Falls Stock Exchange) there is no capital gains tax. The challenge is on the ZSE. The government informed us that they were doing this to dampen speculation and protect the Zimdollar currency. That is why we keep on lobbying but at the moment it's law,” Bgoni said.
The ZSE boss said there is hope that this will change when Finance minister Mthuli Ncube presents the 2023 National Budget later this month.
“On our budget submissions, the one on the removal of the capital gains tax on ZSE is key. We want that one removed. It will help us a lot,” Bgoni said.
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Government has on several platforms argued that malpractices by stock brokers on the ZSE bourse formed part of illegal and speculative activities that fuelled the depreciation of the Zimbabwean dollar through the transfer of funds between brokers’ sub-accounts.
While Bgoni remained bullish on the Victoria Falls Stock Exchange (VFEX) going forward, the sentiment is different for ZSE.
“In the next two months we will be monitoring the 40% capital gains tax which was enacted and we think that it is going to pull down the market. On ZSE we are not bullish. We however remain bullish on VFEX. It may take time but we like the way we are going. If you have noticed there were days when the turnover and trades on the VFEX have been ticking up,” Bgoni said.
Normally towards the end of the year companies and individuals set their targets for the coming year but the ZSE boss said the 40% capital gains tax was an albatross on the local bourse
Bgoni said they would keep engaging policymakers on the matter while issuing a warning that this punitive tax could also threaten Real Estate Investment Trusts (REITS)
“Then there are some changes that we would also want on REITS. We are expecting the first REIT listing on November 23 2022, and we hope it works but the 40% tax overshadows everything,” Bogni added.
The government had erroneously passed into law 4%, instead of 40%.
But in its admission, the government has however instructed the market to apply the 40% capital gains tax but it won’t be deducted as the correction is being put into effect.