HARARE – Zimbabwe’s finance minister Mthuli Ncube on Thursday announced a mid-term budget review that more than doubled the government’s budget announced last November, whose projections have been dented by inflation, which hit 192 percent in June.
Professor Ncube has revised down his economic growth forecast from 5.5% to 4.6% in 2022, while announcing new revenue-generating measures that the opposition says would hurt the poorest.
Ncube lowered the VAT threshold from $60,000 to $40,000 and increased the flat tax from 10% to 30% for cross-border traders without a tax certificate.
The minister also appeared to slam the door on public sector workers demanding US dollar wages, as he only revised his budget to cover a 25% hike in February and a 100% pay rise announced earlier this month.
Former finance minister and opposition lawmaker Tendai Biti who attended the presentation in parliament said Ncube’s revenue measures were “cruel” and the review was largely a “complete disaster”.
Biti said Ncube had missed an opportunity to “address fundamental disequilibrium in the economy”, specifically hyperinflation, exchange rate instability, public sector pay, debt financing and low production.”
Ncube said government was forced to revise its budget allocation for employment costs from Z$492.8 billion to Z$832.8 billion, taking into account salary revisions for civil servants and the hiring of soldiers, teachers, magistrates and magistrates.
“To meet the rising costs of running the government, expenditure to the end of the year is now projected at Z$1.9 trillion against the approved budget of Z$968.3 billion, resulting in additional expenditure of Z$929 billion,” Ncube said.
“The instability of the exchange rate and prices, particularly in the second quarter of the year, resulting from global and national shocks…have all had an impact on the achievement of national budgetary objectives and objectives for 2022.”
“The instability is despite relatively sound economic fundamentals supporting a stable national currency, such as, for example, increased foreign exchange generated by the economy, budget close to balance, suppression of reserve fund growth and l current account surplus,” he said.
The budget offered some positives, including a new tax exemption threshold of Z$300,000 to Z$600,000.
The tax brackets have been adjusted to end at Z$12 million from the current Z$6,000,000 per annum, above which tax will be levied at the rate of 40% from 1 August 2022.
Ncube has also raised the non-taxable bonus threshold from Z$100,000 to Z$500,000 effective November 1, 2022.
But the mid-term budget review was especially a pain for small businesses.
“The sales tax threshold is currently set at $60,000 or local currency equivalent.
“Due to the current macroeconomic environment, the active number of registered traders has decreased as they now trade below the VAT threshold,” Ncube said.
“It is therefore necessary, in the interests of revenue, to maintain a stable tax base, so I propose to lower the VAT registration threshold to $40,000 effective September 1, 2022. Merchants who make Sales of US$40,000 or local currency equivalent in a fiscal year will therefore be required to register for VAT.
Professor Ncube announced that companies are also responsible for paying taxes in Zimbabwean dollars and local currency in proportion to their income.
“Companies are required to convert their deductible income and expenses into local currency when assessing their tax liability. Subsequently, the tax payable is divided according to the ratio of domestic and foreign currency revenue generated in the two currencies.
“The requirement to file a single tax return has created uncertainty in determining the tax to be paid in local and foreign currency. To mitigate the risk of over-taxation or under-taxation, I propose that taxpayers file two separate tax returns in the trading currency.
“The deductible expenses on each tax return are determined by the ratio of local currency income to foreign currency income,” he said.
Professor Ncube said during the mid-term budget review that for the purposes of conversion into foreign currencies, the average exchange rate of the tax year auction will be used if necessary.
This measure will come into force on October 1, 2022.
