Zimbabwe has embarked on extensive revenue-raising measures to mitigate fiscal risks in a year where fiscal revenues from exports will likely trend at best sideways, as commodity prices remain under pressure, IH Securities says in its analysis of the 2024 budget.
It says high levels of dollarisation have also driven transactions into the shadow economy which is synonymous with lower tax compliance.
“As per the MoFED (Ministry of Finance), forex revenue into the country’s coffers accounted for only 48% of collections versus an estimated 78% of forex transactions in the economy,” it says. “This is against growing government USD obligations.”
Zimbabwe has proposed a $58.2 trillion budget against revenue of $53.9 trillion for next year which includes among others:
- corporate income taxes of 25%
- VAT registration threshold reduction from US$40 000 to US$ 25 000 to incorporate the informal sector
- Reducing informalisation and restoring the supply chain from the manufacturer and wholesaler to the retailer by suggesting that only licensed and tax-compliant operators procure goods from manufacturers and wholesalers
- Removing the suspension of import duty of basic goods from 31 January
- Introduction of the Domestic Minimum Top-Up Tax with aim to ensure that global profits of large multinational enterprises are taxed at a minimum corporate income tax rate of 15%
“If successful, the recently introduced measures might have the intended effect of expanding revenue capacity. However, the downside to the sweeping reforms might be the Laffer curve effect, which could see revenues falling further,” IH Securities says.
“For corporates, the aggregate impact of the new taxes on operational costs is likely to result in thinning margins in 2024, thereby impacting earnings for listed companies. However, at current levels, multiples are likely to remain attractive and below historical averages emanating from prices trading at a steep discount, leaving select buying opportunities on both the ZSE and the VFEX.”