Zimbabwe eases forex tax rules to shore up local currency

PUBLIC ADVISORY NOTE ON MEASURES BEING INSTITUTED BY GOVERNMENT TO ENHANCE THE DOMESTIC USE OF THE ZIMBABWE DOLLAR
BACKGROUND
1. Government, through various agencies is presently seized with instituting various measures to enhance the formal use of the domestic currency.

2. These measures are also aimed at stemming illegal trade in foreign currency and its associated twin; that of parallel market benchmarking or indexation of prices of goods and services at parallel market exchange rates.

3. The continuation of these practices, which have been identified as significant contributors to price instability in the economy and are imposing downside risks to macro-economic stability, and the erosion of domestic and international competitiveness.

4. Over the past 40 months, the government has instituted numerous initiatives to bring macro-economic stability. These include fiscal consolidation which has resulted in balanced budget performance and the elimination of destabilising fiscal deficits despite major economic shocks such as the 2019-20 droughts, cyclone Idai and the ongoing threat of the Covid-19 pandemic.

5. Furthermore, the restoration of domestic and export competiveness through the re-introduction of the Zimbabwe dollar, has seen rapid gains being made in stabilising the current account, which has also been boosted by increased international remittances, enhanced export performance and notable import substitution effects.

6. Consistent implementation of the monetary targeting framework by the Reserve Bank of Zimbabwe as well as close policy coordination between fiscal and monetary authorities have been key policy milestones towards achieving price stability.

7. These developments have also seen the rapid growth of privately held foreign currency reserves from levels of around US$300million in 2018, to over US$2 billion currently held in Zimbabwean banks. Official reserves have also increased from less than US$100million to over US$1.2 billion currently, which includes, the US$960 million equivalent in SDRs recently availed by the IMF to Zimbabwe.

8. In the intervening period, government has also improved access to foreign currency by all bona fide businesses and individuals through the auction system.

9. Whilst the foreign currency auction system has provided a platform for the continuous and sustainable use of local currency by individuals and corporations it is now imperative to expand the areas which the Zimbabwe Dollar should be used in the economy and further provide incentives for its use.

10.In this regard, the public is advised that the following measures now apply with immediate effect:

a. All mining royalties are now payable in Zimbabwe Dollars up to a limit of 50% of royalties due.

b. All duties and taxes on the importation of designated motor vehicles are now payable in Zimbabwe dollars again up to a limit of 50% of duties and taxes payable.

c. All domestic taxes due from exporters on their export receipts are now payable in both foreign and local currency in direct proportion to the approved export retention levels. As an example, an exporter who receives foreign currency of say USD1000.00 at a 40% surrender ratio (60% retention) will pay taxes on the 40% in Zimbabwe dollars and the 60% in foreign currency. These measures reflect Government’s commitment to promote the wider use of the Zimbabwe Dollar and to continuously strengthen the economy so as to build long-lasting macro-economic stability.

This advisory note issued in the public interest.

PROF. MTHULI NCUBE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT 04 FEBRUARY 2022

(66 VIEWS)