FINANCE Minister Mthuli Ncube yesterday unveiled several exemptions to the tax on monetary transfers saying the 2 cents per dollar tax will only apply to transactions of $10 and above while intra-company transfers as well as transfers of salaries, tax payments, foreign currency-related payments and transfer of funds by the government will also be exempted.
Ncube said the tax review, which comes in the wake of sweeping measures made on Monday, will be effective once the relevant regulations have been gazetted.
“At the occasion of the presentation of the 2018 Mid-Term Monetary Policy, I announced a review of the Intermediated Money Transfer Tax from the current 5 cents per transaction to 2 cents per every dollar transacted,” he said in a statement last night.
“The 2 cents per dollar tax will apply on transactions of $10 and above only. Transactions below $10 will be exempt from this tax. There is a cap of $10 000 on the amount of tax to be paid. This implies that transfers above $500 000 will attract a flat tax of $10 000.”
The Finance minister added that intra-company funds transfer, including transfer from intermediary accounts, transfers on purchase and sale of equities, purchase and redemption of money market instruments, salary and tax payments and transfers to intermediary accounts will also be exempted.
Ncube called on the nation to bear the “pain” of adjustment with endurance, patience and hope as government seeks to increase its revenue base to offset budget deficits. The tax concessions came in the wake of threats by labour and opposition parties to demonstrate against the tax burden.
Budget deficits are the major cause of Zimbabwe’s macroeconomic instability and financial sector vulnerabilities. By the end of July, it had already ballooned to $1,7 billion.
Addressing journalists earlier in the day Ncube said in this transition, government would not be treated as a sacred cow as Treasury had begun to close loose financial taps, rejecting “unjustified” requests for funding, starting with glaring leakages such as extravagant foreign travels, unscrupulous procurement practices which ripped government off, imprudent borrowings to finance unnecessary expenditures and lavish spending on luxury cars and benefits for senior civil servants.
Treasury will also follow up on every dollar disbursed to government departments through its public financial management system and monitoring and evaluation mechanisms to ensure the money is used efficiently, holding everyone to account in case of delivery failure.
As part of the austerity measures, the civil service will be right-sized through lay-offs; retirements and skills restructuring, backed by a new incentive system, which will be introduced to cater for those who are retained.
The 2019 and 2020 national budgets will institute wage bill containment measures, which will reduce the annual wage bill outlay by $200 million, about 0,7% of the country’s gross domestic product.
Ncube made these remarks to rally the nation behind the Transitional Stabilisation Programme (TSP), which he launched yesterday, four days after his ministry and the Reserve Bank of Zimbabwe (RBZ) announced a set of policy measures that technically de-dollarised the economy and raised taxes on mobile phone transfers.
The TSP aims to guide economic policies and reforms from October 2018 to December 2020 and to implement President Emmerson Mnangagwa’s Vision 2030, which seeks to move Zimbabwe to a middle-income country in 12 years.
The tax hike has eclipsed the importance of the stabilisation case and riled the public and workers unions as incomes have already taken a battering from rising inflation. Prices of some goods went up soon after the fiscal adjustment.
The respected economist, banker and expert on finance said economic stabilisation and growth could not be achieved without pain and insisted the tax hike was necessary to broaden the revenue base and buttress public finances.
“We are dealing with a bleeding economy, a bleeding government,” Ncube said.
“We are asking everyone to contribute to the fixing of the economy. We cannot do this without pain. My view is that there’s more pain at the beginning of the first year or two as we stabilise our macroeconomy. After that, we are all happy that we took the pain together as a nation at this stage, and we go forward. People don’t realise that they are already indirectly paying for the weak economy. What we are faced with is not direct, but indirect. All we are doing now is fixing it together by doing sacrifice.”
Ncube promised that in four months, Treasury would report to the nation how much would have been collected from tax, and how it would have been used.
Treasury secretary George Guvamatanga said the money would be committed to social services, mostly health care, focusing on underserviced areas.
The tax adjustments have been prompted by high economic informality, which has narrowed the revenue base and reduced tax compliance. In a 2016 study of the informal economies of the world, the International Monetary Fund estimated Zimbabwe economic informality at over 60%.
“It’s true that the economy is highly informalised, but financial inclusion has also increased. Thanks to the mobile telecommunication companies and banks, the use of electronic money has deepened. You find that measures that were effective before in broadening the tax base are no longer effective. So, we have to come up with new measures and this is one new measure,” Ncube said.
“The previous tax arrangement was regressive. At the higher end, people were paying very little and this is introducing some fairness.”
The TSP is underpinned by five pillars, namely governance, macroeconomic stability and financial re-engagement, inclusive growth, infrastructure utilities and social development.
Under the first pillar, laws such as the Access to Information and Protection of Privacy Act and Public Order and Security Act would either be “reformed” or “removed in future”.
The TSP is also expected to operationalise the Public Entities Corporate Governance Act to rein in failing public entities and restore order, consistency, transparency and accountability in their operations.
State-owned enterprises, parastatals and other government institutions will be restructured by way of privatisations; mergers and acquisitions and liquidations. Others will be subsumed under government departments.
TelOne, POSB and NetOne will be shed off “in the next six months”.