The cocktail of tax measures introduced by Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube yesterday in the 2024 Budget strikes a balance between providing relief to workers by raising the thresholds of tax-free income, bonuses and taxes on smallholder deliveries, while bolstering Government revenues to finance the economic development and infrastructure of Zimbabwe.
The tax measures are part of a comprehensive strategy aimed at easing the financial burden on taxpayers and using fiscal policy to tame speculation, bring the tuckshops and much of the informal sector into the main economy while simultaneously boosting the Government’s capacity to generate more revenue to support essential socio-economic programmes.
Unveiling the 2024 National Budget that largely reflects the Government’s commitment to fostering a more equitable society, consolidating stability and driving economic growth, Minister Ncube proposed to raise the monthly tax-free threshold from $500 000 to $750 000, resulting in an annual tax-free threshold of $9 million and adjusting other tax bands so that the highest tax rate of 40 percent applies only to annual income exceeding $270 million.
Regarding the local currency bonus tax-free threshold, he proposed to increase it from $500 000 to $7,5 million, meaning that almost everyone in formal employment will get their entire bonus tax free.
The proposed new tax thresholds would be effective from January 1, next year while the bonus tax-free threshold would take effect from November 1, 2023.
The widening of the bonus tax bands will provide much-needed relief to many employees, particularly low-income earners allowing them to retain a larger portion of their hard-earned money and boost their spending power, overcoming the “band creep” of the fairly low monthly inflation seen since mid-year when the last major adjustment was made.
On revenue enhancing measures, Minister Ncube proposed taxation of the micro and small enterprises and licencing of traders to restore the supply chain from the manufacturer to wholesaler and retailer. Under the new measures, only licenced and tax-compliant operators would procure goods from manufacturers and wholesalers. This provides a major incentive for the informal sector to regularise, but without the tax authorities having to spend any money on enforcement.
To ensure fair competition and enhance revenue collection, Minister Ncube proposed only traders registered for VAT purposes and in possession of valid tax clearance certificates will be eligible to procure goods from manufacturers. This would level the playing field and ensure all businesses contribute to the fiscus, the minister said.
President Mnangagwa and his two Vice Presidents Constantino Chiwenga and Kembo Mohadi follow proceedings during the 2024 National Budget presentation at the New Parliament Building in Mt Hampden yesterday. — Picture: Innocent Makawa.
The measure would also end the growing practice of the US dollar underground cash economy, with tuckshops in the lead, being the preferred customers of manufacturers. They can still buy direct, but now need to be licenced, collecting and paying VAT, just like the formal sector.
Furthermore, he wants to include more by lowering the VAT registration threshold to US$25 000 or local currency equivalent, effective January 1. This adjustment aims to bring more businesses into the formal tax system and broaden the base of VAT payers.
Enterprises that meet the revised threshold will be required to register for VAT and comply with all applicable regulations. Failure to do so will result in the imposition of penalties.
Given the recent developments where mining rights are disposed of privately outside the country “at astronomic prices”, revenue generated on sale would be shared equally with the State. Even local mining rights sales will only be valid if all capital gains and other taxes are paid. The move should dampen the extreme speculation in mining rights, without affecting the real miners who produce the minerals.
To enable the Government to track the movement of mining rights for tax purposes, a register of mining rights with a record of applications, grants, variations, dealings, assignments, transfers, suspensions and cancellations will be kept at Zimra.
Any lithium processing that does not result in the production of lithium carbonate will not be considered beneficiation and will be subject to an export tax. Lithium cannot be processed to the extremely reactive metal, and lithium carbonate is the product that is traded globally and which is what is delivered to battery factories.
To ensure compliance, all lithium producers will be required to submit their beneficiation plans by March 31, next year. No new licences will be granted to prospective lithium mining firms without prior approval of their beneficiation plans.
Minister Ncube also proposed to introduce a 1 percent levy on the gross proceeds of lithium, black granite, cut or uncut dimensional stones and quarry stones. This levy will be directly channelled towards community development initiatives and ensure the benefits of mining activities are shared equitably among those most impacted.
The Finance Minister proposed to enact the international rules on the Domestic Minimum Top-up Tax (DMTT) rules to prevent ceding taxing rights to foreign jurisdictions on top-up tax arising from tax incentives that are provided to those investments. The DMTT is part of the Global Rules, which aim to ensure that global profits of large multinational enterprises are taxed at a minimum corporate income tax rate of 15 percent.
Granting of tax incentives results in an effective tax rate of less than 15 percent for some multinationals, but now their Zimbabwe subsidiaries will have to pay the difference for local operations.
Under the Global Tax Rules, where a tax incentive results in an effective rate of less than 15 percent, the tax jurisdiction where the multinational is headquartered collects the difference between the effective tax under the tax incentive and the minimum effective rate of 15 percent , the top-up tax.
The DMTT allows the country where the low tax profits arise to collect that tax on operations within its jurisdiction, rather than ceding taxing rights to the headquarters jurisdiction. The calculation of the DMTT will be based on the effective tax rate charged on the jurisdictional profits, not the jurisdictions’ statutory corporate income tax.
To secure the necessary funding for road infrastructure development, the strategic reserve levy would be raised by 3UScents a litre for diesel and 5UScents a litre for petrol, from January 1. The extra money is added to the pool for road infrastructure.
Minister Ncube proposed an increase of toll fees on premium roads, including the Harare-Beitbridge, Plumtree-Mutare, and other designated routes with effect from January 1, 2024. The revenue generated from these increased fees will be directly deposited into the Consolidated Revenue Fund, ensuring its allocation towards road infrastructure.
To discourage consumption of high sugar content beverages, he proposed to introduce a levy of 2USc a gramme of sugar contained in beverages from January 1, with the money assigned to cancer health services. This has become common around the world.
Minister Ncube proposed the introduction of a Wealth Tax levied at a rate of 1 percent of market values of residential properties with a minimum value of US$100 000. Those over 70 will not pay this on their principal residence. Another tax again aimed at the rich imposes a series of duty surcharges on vehicles valued at more than US$120 000 on import.
On the excise duty, he wants better enforcement. “The growth of illicit trade, in particular, cigarettes, has increased contraband cigarettes produced in legally registered factories under registered brands, thereby decelerating the growth of revenue to the fiscus.
“A digital platform that provides real-time, traceable and authentic data on locally manufactured goods would be beneficial to the fiscus. Government, will, thus, explore the implementation of a digital platform on locally produced goods, in particular, cigarettes.”
The 2024 National Budget, themed, “Consolidating Economic Transformation,” builds on socio-economic achievements that have been made over the past five years and seeks to place the country on a solid foundation for further development and growth.
“Going into 2024, the budget seeks to consolidate and entrench the stability to facilitate economic transformation and preserve disposable incomes,” said Minister Ncube.
“Fiscal restraint and tight monetary policy, together with a healthy current account position, provides the necessary conditions for currency and price stability.”
In line with the projected economic growth of 3,5 percent next year, total revenue collections in 2024 are estimated at $53,9 trillion or 18,3 percent of the GDP.
Almost all, $51,2 trillion would be tax revenue. Expenditures are projected at $58,2 trillion. This means a portion of the capital budget, although a lot is still funded from taxes, will come from borrowing, with the rest of the borrowing needed to pay off matured loans.
The proposed expenditures for next year take into account safeguarding the purchasing power of incomes of civil servants, ensuring the continuous provision of essential social services to vulnerable groups, maintaining and rehabilitating Government infrastructure, prioritising support for ongoing public infrastructure projects, preventing the accumulation of arrears as well as increasing funding for capital projects through public-private partnerships, Minister Ncube said.
Civil servants will see their Covid-19 allowances consolidated into their pensionable salaries.
The 2024 budget is estimated to face a financing gap of $9,2 trillion, which includes the $4,3 trillion budget deficit or 1,5 percent of the GDP and $4,9 trillion needed to repay maturing loans and Government securities. The Government aims to bridge this gap through a combination of domestic and external borrowing.
Minister Ncube said the Government was looking to maintain a month-on-month inflation rate below 3 percent throughout next year, a move that aims to stabilise prices.