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The Bitter Pill of Austerity

Posted on 05 August, 2019 at 09:57

By Luxon Kalonga

Employees in the NGO sector have been on edge about their final taxation fate since their numerous appeals about the revision of the Pay-As-You-Earn (PAYE) calculations guidelines issued by ZIMRA in April 2019. These guidelines were issued following the enactment of Statutory Instrument 33 of 2019 and effectively decimated the disposable incomes of foreign currency earners by obliging employers to calculate employees’ PAYE based on the local currency equivalent of their taxable income. To no avail, some questioned the legality of the guidelines on the grounds that the tax tables were originally introduced when the United States Dollar (USD) was at par with RTGS balances. The only hope left was for the revision of the taxation regime, either through the introduction of separate USD tax tables or significant revision of the current tax tables. The former option was always less likely to occur given that Statutory Instrument 42 of 2019 outlawed the multiple currency regime and proclaimed the Zimbabwean Dollar as the sole legal tender in Zimbabwe. All the lenses were fixed on what Minister Mthuli Ncube’s presentation of the Mid-Term Fiscal Policy Review would bring.

 

Despite the almost ten-fold increase in the USD/ZWL rate on the interbank market, the Minister announced a paltry 100% increase in the tax-free threshold from ZW$350 to ZW$700. Some would have hoped for the zero-tax bracket to be US$3,000 at the very least but hey, let me remind you; we are in the times of austerity, no tax relief is expected in the horizon. Prior to the Fiscal Policy Review, the maximum monthly tax band was ZW$20,000 and employees earning above that amount were taxed at a marginal tax rate of 45%. Now the maximum tax band will be ZW$30,000 and employees earning above this figure will be taxed at a marginal rate of 40%. Again, by simple math, if forex earning employees were to see a shooting star, their wish would be for the band to be at least ZW$200,000. Allow me to laugh out loud to this! J  

 

The energy sector has been one of the visibly struggling sectors in the economy, with intermittent petrol and diesel shortages and massive national grid load shedding. In an effort to align local tariffs with regional ones, electricity tariffs were increased from ZWL9.86c per unit to ZWL45c for non-exporting businesses and to ZWL27c for domestic and agricultural consumers. ZESA will now be able to bill exporters and other foreign currency earners in foreign currency. We expect the imminent introduction of foreign currency prepaid meters which NGOs can take advantage to spend their money as forex. However, due to the low production of electricity in the country and the need for significant foreign currency to settle power debts and import power from within the region, it remains to be seen whether these tariff increases will be followed by increased supply of electricity.

Duty-free status was bestowed on the importation of solar batteries whilst the list of electrical components that can be imported without duty was expanded. We expect that this will significantly bring down the cost of installing solar systems. With the unguaranteed power supply, organisation should look into installing these systems at their offices to ensure continued operation.

The excise duty on petrol and diesel, which was pegged at ZW$1.15 and ZW$0.95 (or 19% and 16%) of the landed cost will now be levied at 45% and 40% respectively. Excise levy on direct fuel imports by organisations with free funds will be pegged at US$0.45 and US$0.40 per litre of petrol and diesel respectively. The increased excise duty will result in significantly increased fuel prices which organisations need to consider in their budgets.

 

This austerity environment ultimately squeezes the final consumer through reduced disposable incomes and increased prices of commodities as producers and importers shift the increased power, fuel and import costs. Livelihoods of citizens are negatively impacted, hence the need for intervention by development partners is called for. It is encouraging to note that the government also realises this need as indicated by the widening of social safety nets through the increased budget for health, social protection and education programmes from the initial ZW$267.6 million to ZW$1.135 billion. Collaboration between the government and the development sector will be key.

 

The 2019 revised budget reflects the long-term view of policy makers in that it has increased allocation for capital expenditure relative to previous years. It had become a norm that employment costs and other recurrent expenditure would gobble at least 75% of the total government spending. However, the revised budget indicated that employment costs and recurrent expenditure (ZW$11.552 billion) would account for only 62% of total expenditure (ZW$18.620 billion). It is apparent that a greater portion of government expenditure is earmarked for capital expenditure, which, in the long term guarantees economic growth and improved livelihoods. However, it is this generation which needs to bear the brunt. Only time will tell if the pains of current times will be comparable to any future benefits.

 

 

 

 

 

 

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