Murerwa to be under pressure to review taxes

Acting Finance Minister Herbert Murerwa will be under pressure to review the tax threshold from the present $750 000 to at least $1.5 million a month when he announces his budget for 2005 next month.

Though the threshold was raised from $200 000 to $750 000 a month at the beginning of this month, it is lagging far behind the poverty datum line -the minimum income a family requires for its basic needs- which is now pegged at $1.5 million.

Despite the decline in annual inflation, now pegged at 314 percent, the poverty datum line is escalating every month and could be over $2 million a month by the time the 2005 comes into effect in January.

The country’s main labour body, the Zimbabwe Congress of Trade Unions says all workers earning below $1.5 million should not be taxed while the highest tax band should be reduced from 45 percent to 30 percent.

Pensions, bonuses, housing and transport allowances should not be taxed.

Currently anyone earning over $1.5 million is taxed at 45 percent.

“Why should workers continue to negotiate for increments in wages and salaries only for the government to take all their gains, while they remain poor and hungry?” the ZCTU asks.

It also queries why workers should be taxed at 45 percent while companies that are in business to make a profit are taxed at 30 percent.

The ZCTU, which was the brains behind the main opposition Movement for Democratic Change and dominates its leadership, says all workers should support the call for a tax reduction.

“The issue of taxation is not a political issue,” it says. “It affects civil servants, workers in the private sector, your children and the unborn.”

“Why should individual income tax be 45 percent when company tax is 30 percent? Companies are into business for profit while workers work for a living, so why should workers be deprived of their right to life by being taxed to death?”

Zimbabweans are among the highest taxed in the region. In South Africa, for example, anyone earning up to R32 222 a year is not taxed. This tax-free threshold translates to about $2.3 million a month at the current auction rate.

The tax-free threshold for those over 65 is R50 000 a year, about $3.6 million a month.

The highest tax rate is 40 percent and applies to those earning more than R225 000 a year, about $16.4 million a month.

Unlike other governments in the region, Zimbabwe is relying on taxes on individuals as its major source of revenue. Individual taxpayers in Botswana, for example, only contribute 14 percent of the country’s revenue. The bulk, 44 percent, comes from mineral taxes.

In his mid-term review for the half-year to June, Murerwa said individual taxpayers contributed $1.2 trillion dollars to the fiscus, accounting for nearly 39 percent of revenue. Corporate tax during the same period was only $321.1 billion, about 11 percent of total revenue.

The high taxes on individuals, that are enabling the Zimbabwe Revenue Authority to surpass its revenue targets, are giving a false impression that the authority is efficient when the money is collected on its behalf by employers. This is clearly shown by the authority’s failure to meet targets on corporate and other taxes because it is not able to bring everyone under the net.

The high taxes on individuals dampen demand because they deprive people of disposable incomes to purchase goods and services. In his budget for the current year, Murerwa said the review of the tax threshold from $15 000 to $200 000 a month would release $1.2 trillion to taxpayers while that from $200 000 to $750 000 a month would release $750 billion to taxpayers.

The review, he said, was aimed at “enhanc(ing) disposable income in the hands of workers”. He said “this also benefits increased aggregate demand for goods and services” thereby stimulating economic activity.

The ZCTU is advocating that only those earning over $7.6 million a month should be taxed at 30 percent. At the moment this band applies to those earning between $1.05million and $1.2 million.

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