EDITORIAL COMMENT: Budget in general solves problems, raises money Finance, Economic and Investment Promotion Minister Mthuli Ncube

The Second Republic has won a lot of credit for its major fiscal reforms that see the national Budget balanced or very close to balanced, and with a significant slice of the Budget allocated to capital expenditure, mainly upgrading infrastructure rather than spending everything on running costs and salaries.

Backed by President Mnangagwa, Finance, Economic and Investment Promotion Minister Mthuli Ncube has imposed a high level of fiscal discipline and has ensured that all Government expenditure is budgeted for, which also includes the requirement that Parliament approves it, and is accounted for.

At the same time the Second Republic has been keen on implementing a double policy that everyone should pay something in tax, even if this is only VAT and the two percent transfer tax, those who are better off should shoulder a larger share, but not so large as to destroy initiative and investment.

There has also been a willingness to use fiscal policy to combat some of the dubious money making schemes that those who want to manipulate markets indulge in, while allowing those who are boosting production to enjoy the rewards of that activity.

Yesterday’s Budget for next year brings up all these points, and generally tries to be fair, tries to end some of the worst manipulations, and raised enough money to finance the essential development as well as running costs of the services that the Government needs to offer to the people of Zimbabwe.

Prof Ncube wants to keep the deficit very small, in fact a very small fraction of the capital budget. The general policy that even a lot of capital development must come from taxes rather than borrowing, with borrowing only allowed when there is an almost immediate stream of new income arising from a capital development. This keeps the national debt low, or at least ensures that it does not rise by very much.

He has looked after the bottom end of society by raising the tax free threshold on income tax to $750 000 a month, with a $7,5 million tax free threshold for bonuses, while widening the tax brackets above the threshold. 

This means that tax payers keep most of their income with those nearer the bottom keeping a far higher percentage, part of the policy of fairness.

A lot of the bracket adjustment is to compensate for the inflation, which while falling fast is still a nuisance and was threatening to push too many people at the bottom end of the income ladder into the middle ranking tax brackets.

With a target of keeping monthly inflation below 3 percent a month, there will still be need to adjust these brackets modestly during the year, but not by the sort of shifts we saw this year.

At the same time threshold for withholding tax on smallscale farmers selling their produce to the GMB has been raised considerably. This was largely theoretical in the past, as too many smallscale farmers were not earning enough to even exhaust the old threshold.

But a lot thanks to Government agricultural policies are now moving up the ladder, and the new thresholds will encourage them to keep expanding production. 

In any case, the threshold is still a little below the annual income tax zero tax threshold but not by much, so there is more equality between rural and urban dwellers.

The Minister has also produced some smart moves using fiscal policy to stop some particularly undesirable collaboration between some manufacturers on one hand and some tuckshop owners on the other, collaboration that has seen artificial shortages and a pure foreign currency underground economy emerging where no one pays tax on the cash payments that are involved.

Forcing these tuckshops and small traders to join the regular and formal retail sector in being licenced by the local authority where they operate and then to pay all their taxes, to the extent that they cannot buy goods from a manufacturer or wholesaler until they have a licence and a tax clearance certificate, should end some of the worst shenanigans. 

The Minister backed this up with demanding that all traders with revenues of over US$25 000, a much lower threshold than before, now register for VAT. 

We need to remember that Zimra now demands that those who meet the VAT threshold have equipment that allows Zimra to monitor their sales, stopping tax cheating. And a trader needs to be a VAT payer before they can buy from a manufacturer, although they can still buy from a wholesaler if they pay the rest of their taxes.

Using the tax laws does not impose any arbitrary bans on anyone or interfere with their rights of buying and selling. But it does ensure that as they do those transactions and as manufacturers sell goods directly to retailers, everyone is paying their taxes, and about time too.

The Minister also wants to see a lot better compliance from some manufacturers, mentioning cigarette manufacturers in particular, and has put in measures so that they will have to pay their duties on local sales.

There has been a lot of speculation in mining rights, not so much real mines with real shafts or open-cast workings and real people earning salaries, but with the rights to mine but with no one digging out the minerals. 

People go through the paper work and get these rights, hand on to them for a short while and then sell at huge profits. Now when they sell they have to pay the capital gains taxes, and foreign holders of the rights will be paying in effect a 50 percent capital gains tax, that is they can get their money back and some profit, but nothing ridiculous.

Then the Minister is going after the conspicuous consumption of the super rich with the duty surcharges, that is extra duty over and above the normal rates, on super luxury cars. Considering that you can buy a high-class car or light truck or double cab for US$100 000, this surcharge should affect no one. 

But some like to show off their status with incredibly expensive vehicles and they can pay for that privilege. With luck they will something high quality and up-market, but not super luxury, and invest the extra in productive activity.

There is also a wealth tax of one percent on houses and flats with a market value of US$100 000 or more. The objective is to get the better off to pay more of their fair share in taxes. 

Many at this level earn their income from dividends, taxed at 15 to 20 percent, and while the profits distributed as dividends were subjected to company tax, the actual income of the inactive investors in large companies is taxed at a much lower level than salaries of the same level. 

So we can see the Minister’s point. However, US$100 000 can be a middle income residence if it is on say half an acre or more, and there are a lot of older properties in this range owned by middle-class families. 

In addition, there is the problem that there is a sudden jump when the tax comes due. Perhaps some careful adjustments could be done at the Parliamentary debate stage, either a graduated tax starting at say a quarter percent and rising to 1,5 percent as value rises, or taxing the value over US$100 000 with the first US$100 000 tax free, like what we see with death duties and income tax. This would still create the tax revenue but be fairer.

Generally the budget works, is fair and makes life more difficult for the cheats and manipulators. So it needs to be backed. As in past years MPs will have to debate the whole thing, and if they can come up with improvements, that still bring in the same revenue and accomplish the same ends, they should speak up as that is primary job of Parliament.

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