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Business Reporter
The Government will need to align the income tax threshold to the Poverty Datum Line if civil servants’ minimum salaries are set according to the cost of living, a financial institution has said. Zanu-PF, the party which informs Government policy, recently resolved that the least paid civil servant should get a salary equivalent to the PDL, pegged at $505,21 in September.
At present, the least paid civil servant is getting about $297.
Finance Minister Patrick Chinamasa is next month expected to announce the 2014 fiscal policy which will among other things set the taxation rates for the coming year.
In previous budgets, the Government has increased tax thresholds, giving people more spending money.
In a weekly commentary, financial services group Kingdom AfrAsia said since most employers in the private sector would not be able to match the government’s salary increase, the fair thing to do would be to increase the income tax threshold to PDL levels from the current $250.
However, Kingdom AfrAsia said reducing income tax would pose a dilemma for the Government as it would mean less tax collections at a time it needed money to meet the increased wage bill.
“Expectations are high that the upcoming budget will result in movement of the tax free income and bonus thresholds. The expectations are necessitated in part by the fact that the majority of workers in the country are earning below the poverty datum line (PDL) which stood at $505,21 in September 2013.
“Government recently conceded that civil servants should be awarded salary increments that take the lowest paid civil servant to the PDL. If this move is to be effective it means either the lowest salary for civil servants has to be pegged at $505.21 with the tax free threshold increased to at least the same figure or the least paid civil servant will have to earn a gross salary of at least $580.28.
“Given that not all employers will be able to increase their employees salaries to the PDL, the fairest move by government would be to raise the tax-free threshold to the PDL. The dilemma facing the government is that it will need to fund the salary increase for civil servants from tax revenues while at the same time it is expected to earn less from income taxes owing to the lifted tax brackets,” said the commentary.
It said Government would have to look for other sources of funding to fund its operations.
These included maximising revenue from diamond mining through value addition.
“Given the relatively low value of rough diamonds, government should also invite investors to invest in diamond polishing so as to extract more value from exporting processed diamonds.”
It also said parastatals, currently making losses and draining the fiscus, should be transformed into profitable enterprises able to pay a dividend to the Government.
“The tax base can be widened by ensuring that those in informal employment or informal businesses are made part of the formal sector.
“The informal sector is contributing significantly to the country’s GDP but it has not been easy for government to collect revenue from the sector,” said Kingdom AfrAsia.
Since the downslide of the economy at the turn of the century, the majority of people are now in the informal sector, which employs more than 70 percent of the population.
The bank said the Finance Minister in his budget faced a challenge of balancing the public’s expectations, reviving the economy and raising the necessary funding.
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