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On January 3, $91 666 was equivalent to US$136 using the auction rate of that time while $1million amounted to US$1 490. Today, $91,666 buys US$20 while $1million is equivalent to US$219.
Workers who earned $91 666 per month did not pay any tax. The one who earned $1 million or US$1 490 was subject to 35 percent tax and those with monthly salaries of more than $1million were taxed at 40 percent.
Much has changed in the economy since January with prices shooting up and the Zimbabwe dollar weakening widely yet the tax rates remained stagnant. It was unfair that someone who was earning $1million — and they are many now amid the rise in inflation and salaries over the past few months to June/July — was paying tax at the rate of 35 percent.
The rate was too high and left most workers with low disposable incomes thus their unions have been grumbling.
Authorities have responded positively by revising the tax-free threshold to $500 000 per month from $91 666 effective this month with the highest marginal tax rate of 40 percent now applicable on income above $15 million per month.
“Due to recent macro-economic changes that necessitated salary reviews, a significant number of employees are caught up in a bracket creep, consequently, some salaries and wages are subject to higher rates of tax,” Finance and Economic Development Ministry Permanent Secretary, Mr George Guvamatanga, said.
“In order to provide relief to taxpayers and also boost aggregate demand for goods and services, Treasury has approved a review of the local currency tax tables with effect from 1 August 2023.”
Every worker will be relieved that the Government has taken this decision. It restores their purchasing power while showing that authorities are up to speed with the prevailing dynamics in the economy. This means that from this month, those who earn $500 000 monthly will collect their cheques as they are while the fat cats who gross $15 million-plus monthly will be taxed at 40 percent.
We are most concerned about the shop floor crew, who don’t get the big perks their bosses enjoy, who don’t have company cars, who pay fees for their children, and who don’t get holiday allowances, thus encouraged that the Government has heard their concerns.
Authorities should, as we move ahead, be as swiftly responsive to the economic situation as possible so the shop floor cushioned.
We cited an economist, Dr Prosper Chitambara yesterday welcoming the review but adding that unions could have been happier if the tax-free band had been set at $1million.
To some degree, we agree with him. The sum he suggested may be on the high side, but $650 000 to $700 000 could have been more ideal.
While we could have been happier if the tax-free threshold had been a little higher, the state of the economy at this time is encouraging. Prices actually falling, the dollar holding its own and inflation declining as a result.
The tax band reviews on one hand, and the positive economic developments on the other should, therefore, create a balance that makes the worker happy.
Online Reporter