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Prosper Ndlovu-Bulawayo Bureau
Subsidies are being phased out and in future will only be considered where there are market failures, and even then must be the minimum needed and be budgeted for, while at the same time tax incentives and concessions to the productive sectors will be re-examined to ensure these are streamlined in line with fiscal objectives, Cabinet agreed this week.
Most subsidies have now been dropped, and the original objectives are being met by targeted social payments to those who needed the help in the first place.
The tax regime streamlining follows the calculation that Treasury has sacrificed up to US$2,3 billion in potential revenue through granting tax incentives between 2011 and 2019.
Although tax holidays, subsidies and provision of stimulus funding for the private sector have become key features of the country’s national budgets each year, Treasury has stressed the need to streamline these in line with the fiscal consolidation objectives.
In the past, there have been concerns over abuse of subsidies and tax incentives by some in past years with fiscal indiscipline contributing to bloated public expenditure, which weighed heavily on the entire economy.
The matter was tabled at this week’s Cabinet meeting where the Government considered and approved proposals on the rationalisation of subsidies as presented by Minister of Finance and Economic Development Mthuli Ncube.
After the meeting on Wednesday, Information, Publicity and Broadcasting Services Minister Monica Mutsvangwa said the rationalisation framework was meant to ensure that any subsidies meet a specific public policy objectives.
That entailed using subsidies to remedy an identified market failure while being in minimum size, necessary to achieve such an objective. Tax incentives for the productive sector, in particular, had come in as a huge sacrifice to the national purse.
Government supports the productive sectors of the economy by extending tax concessions, as a way of improving viability, productivity and competitiveness, but at a cost of forgoing about US$2,3 billion through tax incentives during the period 2011 to May 2019.
Cabinet noted that previous economic blueprints, despite having similar targets, had fallen short on implementation.
Hence NDS1 was premised on the need for bold and transformative measures that will ensure achievement of the country’s vision of an empowered and prosperous upper middle-income society by 2030, said the minister.
The goal in NDS1 is economic of five percent a year, supported by a sustainable annual fiscal deficit target of around 1.2 percent of GDP, exchange rate stability and single digit inflation.
Online Reporter