Govt widens tax bands

Business Writer

Government has raised tax-free thresholds fivefold to provide relief to employees who are now subjected to higher tax rates following a recent wave of upward salary adjustments in response to higher prices, according to a notice by the Ministry of Finance and Economic Development.

The move is meant to boost aggregate demand.

In a notice to the Zimbabwe Revenue Authority (ZIMRA), Finance Permanent Secretary, George Guvamatanga, said the monthly tax-free threshold – with effect from August 1, 2023, has been increased to $500 000 from $91 666.

The highest marginal tax rate of 40 percent now applies to incomes above $15 million, said Guvamatanga.

The last review was done in January and the country experienced high levels of inflation during the bigger part of the first half, which severely diminished consumers’ incomes.

This forced many employers to cushion their workers by raising salaries and wages.

Prior to the latest review, an employee earning $1 000 001 and above per month was now subjected to a tax rate of 40 percent, which was the highest marginal tax rate.

“Due to recent macro-economic challenges that necessitated salary reviews, a significant number of employees are caught up in basket creep, consequently, some salaries and wages are subject to higher tax rates,” said Guvamatanga.

“In order to provide tax relief to taxpayers and also boost aggregate demand for goods and services, Treasury has approved a review of local currency tax tables with effect from 1 August.”

Workers earning between US$500 001 and $1,5 million will be taxed 20 percent; 25 percent for those earning between $1 500 001 and $5 million and then 30 percent for employees in the income category ranging from $5 000 0001 to $10 million.

A 35 percent tax rate will apply to workers earning between $10 000 001 and $15 million. The review of tax thresholds is normally done when the Finance and Economic Development Minister presents the Budget Review Statement around July or early August.

The new tax rates are almost aligned with the US dollar tax thresholds at the official exchange rate.

Workers earning between US$101 and US$300 per month are taxed 20 percent, and 25 percent for employees earning between US$301 and US$ 1 000. A 30 percent tax applies to workers earning between US$1 001 and US$2 000; 35 percent to those getting incomes between US$2 001 and US$3 000 and 40 percent to employees earning above US$3 001, according to thresholds obtained from ZIMRA.