Government in aggressive tax drive as revenue shrinks

Zimbabwe’s finance minister Patrick Chinamasa on Thursday announced a raft of tax increases as government registered a $112 million shortfall in targeted revenues in the first half of the year, while signalling a flexible approach in applying the country’s foreign ownership law in a bid to attract sorely needed investment.

Government revenues in the first half of the year were $1.735 billion, against a target of $1.847 billion, with value-added tax (VAT) and pay as you earn (PAYE) being the major contributors.

Expenditure in the first half stood at $1.953 billion, exceeding the $1.848 billion target. The government wage bill shot up to $1.486 billion, representing 76.1 percent of total expenditure.

In a bid to shore up sagging revenues in the face of ballooning expenditure, Chinamasa announced tax increases on fuel, employee allowances and mobile phone credit and handsets with effect from September 15, 2014.

“Whereas the income tax act obliges employers to deduct and remit PAYE to Zimra, the trend that has been observed especially in public enterprises it that fringe benefits were not being subjected to employees taxes as is required by the law,” Chinamasa said.

Customs duty on motor vehicle imports, which he said account for 10 percent of total imports, is also set to go up in November.

Excise duty on fuel will rise from 30 cents per litre to 35 cents for petrol and from 25 cents to 30 cents per litre for diesel, which will likely raise fuel prices.

Chinamasa slapped a five percent excise duty on mobile airtime effective September 15, while cellphone handsets will be subject to a 25 percent customs duty from October 1.

Government, however, reduced royalties on gold by primary, large-scale producers to five percent from seven percent.

Gold refined increased to 8,867 tonnes as at August 30, compared to 8.5 tonnes last year, he added.

The government will suspend its whistleblower fund for tax cheats and offer a six-month amnesty to defaulting tax payers who disclose what they owe the revenue collection agency.

In addition, holders of A2 farms who received 99-year leases will now contribute to the cost of land survey.

The export of raw animal hides and crocodile skins will be exempt from taxes from January to December this year.

Interest earned on savings instruments issued by mortgage lenders will now be exempt from tax.

But imports of meat and edible offals will now be subject to tax, he added. However, imports of essential goods not locally produced by government departments will not be taxed.

Tax laws, Chinamasa said, will be reviewed from October.

The minister said there was need for government to harmonise investment laws to attract more foreign direct investment, which, according to the central bank, fell 59 percent to $67 million compared to $165 million in 2013.

He pledged more incentives in the 2015 budget statement.

Chinamasa said Zimbabwe’s indigenisation policy, which analysts blame for lack of foreign investment, would be implemented on a sector by sector basis and not through a one-size-fits-all approach.

Empowerment could also be achieved by buying shares on the Zimbabwe Stock Exchange or through Build-Operate-Transfer, among other models, he added.

“Compliance through incentive packages …can be offered to investors who invest in needy sectors of the economy, joint ventures, contract farming and land use agreements and build operate and transfer projects,” Chinamasa said.

“It is my hope that the minister administering this piece of legislation will give the necessary clarification by way of a notice in the government gazette.”

The use of multi-currencies will continue, he said, adding that government had no appetite to change the policy. The special coins which the government plans to import to address the shortage of lower denominated currency, will buttress the multicurrency system and improve business confidence, he said.

Chinamasa said agriculture was the biggest driver of the economy in the first half of the year after tobacco and maize registered growth, and maintained the revised economic growth target of 3.1 percent for 2014.

“We have had to revise our growth target for this year from 6.1 percent to 3.1 percent, mostly because of the underperformance of the mining and manufacturing and tourism sectors,” Chinamasa said.

The mining sector to seen registering a negative 1.9 percent growth from initial projection of 10.7 percent due to weakening commodity prices.

He said maize output at 1.46 million tonnes was higher than the target of 1.3 million tonnes. The Tobacco Industry Marketing Board last month said 211 million kg of flue cured tobacco was sold this year compared to 167 million kg last year.

Cotton and sugar cane also registered growth.

Chinamasa said he hopes that the upturn in agriculture would drive similar recovery in the manufacturing sector.

Chinamasa put Zimbabwe’s total debt at $8.8 billion, and explained that the unbudgeted loan repayments of $180 million to Chinese firms were meant to unlock new funding.

A debt strategy plan will soon be submitted to Cabinet.

The minister said Zimbabwe will start ‘token payments’ to European Investment Bank before year-end. The bank is owed $314 million, of which $238 million is in arrears.

He said the RBZ Debt Assumption Bill is now before Parliament, while the validation of the central bank’s debt is ongoing, with $204 million verified so far.

Chinamasa said the International Monetary Fund (IMF) was ‘broadly’ satisfied with Zimbabwe’s performance under the staff monitored programme (SMP), an informal and flexible instrument for dialogue between the Fund staff and a member country on its economic policies.

As a result, the IMF had seconded an official to Zimbabwe in July after a decade long absence, signalling the restoration of relations between Zimbabwe and multilateral lenders.

Government disbursed $130.4 million for capital projects in the first half, with the renovations at Victoria Falls Airport accounting for $73 million. Government still owes $146 million to contractors.

Loan funded budget projects totalled $200 million in the first half of the year against a projected $922.6 million. Zimbabwe has this year received $101 million from the Global Fund, which was channeled through the UNDP.

Chinamasa said the government will put up $252 million for the presidential farm input scheme for the 2014/15 season, with 1,6 million households benefitting.

The shipment of $38 million worth of farm equipment under $100 million Brazilian facility had commenced.

About 1.6 million households to receive $32 each under a livestock support scheme.

The government was reviewing the legal framework for parastatals while remuneration for executives for such companies will be finalised by end of October.- The Source

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