Online Reporter
ONCE again, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube has not just pulled off a budget that retains stability in currency, pricing and exchange control, which remain the bedrock of his calculations, but by removing inequalities within the tax system and hunting down those who do not pay their dues, sees revenue rising faster than economic growth.
Next year Prof Ncube sees his revenue collection reaching 16,9 percent of GDP, significantly more than the 15,2 percent this year and the 14,3 percent last year, with minimal impact on the ordinary person.
It must be remembered that this percentage will be on the higher GDP that comes from 6,6 percent growth this year, giving a double jump.
That enhancement of revenue collection, and the tight fiscal discipline the minister imposes means that almost all the cash he wants to spend must already be in the consolidated revenue fund, has allowed the Minister to push expenditure to 17 percent of GDP, the tiny gap being funded though very low borrowing on the part of the capital budget where immediate new income streams are generated.
People want to see more services, and even with very tight controls on Government spending to prevent waste, and we have been through those processes as well, the only way to get decent jumps in health or education spending, or more dams and more irrigation , or better roads and all the other things we need, is to have more money. Foreign aid flows have been falling around the world so everyone needs to tighten revenue collection.
The minister made it clear right from the beginning of his Budget Statement that the costs of high inflation and exchange rate instability in modern times had largely been eliminated, with ZiG annual inflation next year down to 12,1 percent on less than 1 percent a month and that he was going to, with support from the Reserve Bank of Zimbabwe on the monetary front, going to maintain that stability.
The dramatic falls in inflation mean that for the first time for several years, the Minister did not have to adjust personal income tax brackets. The very low recent inflation made this unnecessary.
Much of the enhanced revenue comes from aligning a range of mining tax legislation with modern conditions. With all the open ended capital allowances that can be moved in full from year to year, and other antiquated law, the mining sector, the largest in the Zimbabwean economy, pays tax at a calculated rate of 14 percent once everything is summed up.
Yet the present modern global standards see countries whose mining companies operate in other countries and pay under 15 percent should pay their country where they are headquartered extra taxes to get to at least the 15 percent. So Minister Ncube wants them to pay at least 15 percent in Zimbabwe so we get the full sum almost every miner must pay someone somewhere.
The Minister, besides his range of new tax rules for miners, has also been adding pressure for more value addition in Zimbabwe. Lithium miners will now pay 10 percent on exports of ore and concentrates, but zero once they send everything out of the country as lithium sulphate. Other miners see similar pressure on going for top value exports.
The royalties on gold were split with artisanal miners paying less than large companies. This caused leakages and was considered in any case very unfair. Everyone will now pay the same, but on a graduated scale with the royalty rising as world gold prices rise and falling if they fall.
The unpopular ZMTT tax on bank and mobile money transactions remains, since it provides 8 percent of revenue, but the rate for ZiG transactions drops from 2 percent to 1,5 percent while foreign currency transactions remain at 2 percent.
VAT has undergone more changes than most taxes. The standard rate rises to 15,5 percent from 15 percent, a tiny increase in prices, but a lot of the processes in the earlier stages of the manufacture, import and retail stages have been simplified to eliminate cheating as well as promoting fairness.
VAT will now be charged on payments for foreign services, including IT and media services, with banks collecting the tax from their customers before making the payments.
Foreign service providers will become more liable to pay taxes when they operate in Zimbabwe, with the exemptions on registration for tax becoming significantly more limited.
The Minister is using his powers under tax laws to make it easier for Zimbabwean industrialists to import machinery and raw materials.
One major problem still exists, the large informal sector that does not contribute much to tax largely because those in that sector keep their heads down, do not register with Zimra and do not pay. Taxing small businesses has always been difficult because there is the danger that the cost of collection may be greater than the small amounts each business pays.
Some attempts to collect at least presumptive taxes have run into unexpected complications. While contractors are supposed to collect a 30 percent deduction on unregistered businesses they contract it can be found that the contractor has a zero tax liability, and so neither concern pays. Local authorities should be used by Zimra to collect presumptive taxes for a 10 percent commission when they send teams out to collect licence fees, but most local authorities are non tax-compliant. Yet the commission would be easy to earn and help their budgeting.
The minister wants the gaps filled, and Zimra need to concentrate on getting the larger taxpayer to conform so that they can make the smaller tax payers conform.
Certain curiosities have also arisen, partly in the trucking and water truck sectors, and the Minister closed those escape holes.
We have seen this in the past in other areas of Government finance, that there is need for continual upgrade in rules until all the bolt holes are blocked and those who wish to manipulate the system sit back and conform.
