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Oliver Kazunga
Business Writer
Challenges of access to foreign currency are set to deepen further following the repealing of legislation that relates to the suspension of duty on capital equipment for specific mine development operations.
The Zimbabwe National Chamber of Commerce said this during the 2023 post-budget review breakfast meeting organised by the Confederation of Zimbabwe Retailers (CZR) in Harare this week.
In the 2023 fiscal policy statement presented last month, Finance and Economic Development Minister Professor Mthuli Ncube said: “As already alluded to, Government recently provided for a zero-customs duty regime on capital equipment imported by the agriculture, energy, manufacturing, mining and energy, with a view to simplify tax administration.
“Mining companies are, thus, able to import specified equipment without seeking approval from Government Ministries, thereby reducing the cost of doing business.
“I, therefore, propose to repeal legislation relating to suspension of duty on specific mine development operations, in line with the ease of doing business concept, with effect from 1 December 2022.”
Since 2010, Prof Ncube said the Government had suspended customs duty on goods of a capital nature used for mining development operations.
At the breakfast meeting, the Zimbabwe National Chamber of Commerce (ZNCC) president Mike Kamungeremu who was represented by the chamber’s chairman for economic affairs Ephraim Chawoneka said while most of their submissions to the 2023 national budget formulation had been considered, the repeal of legislation that suspends duty on capital equipment for particular mine development operations with effect from December 1, 2022 was tantamount to further deepening the access to forex challenges by mining companies.
“Our submission implies that the mining companies will need more foreign currency to cover the cost of insurance and freight for the goods as well as the duty in a setting where about 40 percent of the export receipts is surrendered to the Reserve Bank of Zimbabwe (RBZ) when the sector that is generating about 75 percent of the country’s foreign currency starts to compete for forex with other sectors at the auction or interbank market, the problems in access to foreign currency will further deepen,” he said.
At the moment, businesses access the scarce forex at the Reserve Bank of Zimbabwe (RBZ) weekly forex auction trading platform and the interbank market.
“The repeal of the legislation, it’s our submission that it should be postponed to a later date in 2024.
“This will just serve as a warning to mining corporates that the suspension of the duty will be removed soon and they will obviously put their house in order, we’re just appealing for more time,” he said.
In the 2023 national budget, the Government proposed a cocktail of tax relief measures including the reduction of Intermediated Money Transfer Tax (IMTT) from four percent to two percent.
In May this year, the Government introduced IMTT on all domestic foreign currency transfers at four percent with a view to promoting the usage of local currency.
In the 2023 national budget, Prof Ncube highlighted that it has, however, been observed that some entities were now preferring to settle transactions in cash instead of electronic transfers.
And thus, in order to promote the use of the banking system, the fiscal authorities proposed to align the IMTT on all foreign currency transactions to local currency transactions at a rate of two percent with effect from January 1, 2023.
Kamungeremu said aligning IMTT on foreign currency transactions to local currency transactions at a rate of two percent and Government’s proposal to consider the 20 percent surrender requirements for domestic and foreign currency transactions, is in line with the chamber’s submission on the 2023 national budget formulation.
“We commend the Government for heeding the call to level the playing field with regard to IMTT on both local and foreign transactions.
“We, however, have some concerns about the Zimbabwe Revenue Authority’s position, a case in point is when a company receives payment through the bank; 20 percent is converted into RTGS at the prevailing RBZ rate.
“Zimra on the tax side deems that the business has received US dollars when in actual fact the business is no longer in possession of the full amount of the US dollar because part of the payment has been converted to RTGS.
“Therefore, the tenet that states that the tax should be fair in this case falls short,” he said.
“As an example, the net profit margin for most manufacturing sector companies is 20 percent and in a case where the RBZ has already converted the received payment to RTGS, then the question is where is the US dollar component of profit supposed to come from?
“Indeed, our submission is that the 20 percent surrender requirement needs to be reviewed.”
Speaking at the same occasion, the Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza who was represented by an economist Victor Bhoroma said the industrial representative body welcomed the reduction of IMTT to two percent.
“In terms of our submissions, we would like to thank the Honourable Minister for adjusting IMTT from four percent to two percent. In the past, three or four months, the level of criminal activity or heists that happened because of cash being stored on business premises or at home has gone up tremendously.
“People are storing excess amounts of cash at home and in their business premises, and it’s a security risk and it’s also not good for the economy because there is a lot of externalisation that is happening where businesspeople are trying to take cash out of the country,” he said.
Mr Matsheza said the Government also needs to look at incentivising the few corporates in the formal sector that are meeting their tax obligations.
“One of the strategies that the Government needs to look at is how do we ensure we formalise and give incentives to taxpayers that are paying their taxes on time.
“There are few corporates that are anchoring the whole economy that are paying taxes, otherwise the culture of not paying taxes in Zimbabwe is now rife such that some of the players that are very formal find ways to dodge taxes and informalise,” he said.
Bongani Ndlovu