Govt told to remove 2 percent tax by Dec 2019

Zimbabwe's new Minister of Finance, Mthuli Ncube
Minister of Finance, Mthuli Ncube has hinted on introducing own currency within a year.

Harare – The Confederation of Zimbabwe Industries (CZI) has urged the government to ensure the two cents per dollar transactional tax is only a short term measure and proposes it ends by December 2019.

In an press statement read at the CZI offices in the capital on Friday, the organisation’s president Sifelani Jabangwe said the tax should be a temporary measure as it could stifle economic growth in the long term.

“We must point out that this tax is not sustainable over any extended period of time as it taxes each stage of the value chain and negatively affects the growth and competitiveness of value chains.

We propose that the tax expires by December 2019 at which point we expect that government would have adjusted its expenditure mix to match collections and more targeted ways of broadening the tax base will have been developed,” he said.

Jabangwe said the government had to play its part in correcting previous failed economic measures and called for complete transparency regarding the recently implemented tax.

“Given that through this tax, we are inflicting pain on the entire economy and assuming collective responsibility to correct government errors of the past, the government is obligated to be fully transparent by accounting for the collections and use of the 2 percent [sic] tax,” he said.

The CZI statement urged the government to urgently implement the following six key austerity measures as outlined in the government’s recently launched Transitional Stabilisation Programme.

  • Firstly, an immediate reduction in government spending, through cutting the public sector workforce as well as reducing employee fringe benefits including travel allowances, vehicles and provision of fuel.
  • Placing a limit on the issuance of new Treasury Bills to the minimum required and ensuring the government securities are distributed through market-based auctions.
  • A limitation of the over-draft facility with the Reserve Bank of Zimbabwe to the statutory level permitted by law.
  • Accelerating the restructuring and the privatisation of state- owned enterprises.
  •  Eliminating “budgetary subventions” to state owned enterprises and using instruments such as government guarantees to support them where justified.
  • Retiring all civil service staff at retirement age and above  and lastly, move to a market-based foreign exchange allocation system.

Jabangwe said despite the current financial challenges faced by Zimbabweans the economy was “performing very well” citing a recent economic review by the International Monetary Fund (IMF).

This week the IMF announced a revision of Zimbabwe’s economic growth forecast increasing it to 3,6 percent from 2,4 percent it projected in April this year.

Despite this, Jabangwe said confidence in the country’s economy was “critically low” primarily due to the uncertainty of the value of Real Time Gross Settlement payments.

Jabangwe said the confederation understood the government had to tackle Zimbabwe’s fiscal deficit which currently stands at over $1,3 billion, but reiterated the new tax regime should be “a short term shock therapy measure” as “economies are not developed through over taxation.”

The government’s Treasury report for June showed the country’s fiscal deficit grew after government spending increased in the run-up to the 2018 harmonised elections.

Jabangwe urged the government to refrain from unilateral financial policy decision making in the future and it allows for a “multi-stakeholder review process” in order to track the progress of the government’s Transitional Stabilisation Programme.

The programme, which runs from October 2018 to December 2020, was announced by Finance and Economic Development Minister Mthuli Ncube earlier this month.

Upon its launch, Ncube said the programme aims to “operationalise Vision 2030” which was the main agenda outlined by ruling Zanu PF party in its latest manifesto.

The party pledged to make Zimbabwe a middle income country by 2030 which Ncube said would mean a per capita income of $3500 per person.