Treasury has unveiled foreign currency denominated income tax bands that will see the tax free threshold pegged at US$350 while the highest bracket will be for those earning more than US$15 000 per month, who will be taxed at 40 percent.
This comes as the Government has indicated that it will levy taxes in foreign currency on businesses that were trading in hard currency as Treasury seeks to have its tax structure reflect what is happening in the economy.
Pegging of income tax in foreign currency is consistent with the Government’s position allowing those businesses such as fuel and mining firms and individuals with free funds to import products and sell them in hard currency and does not mean redollarisation of the economy.
While the Zimbabwe dollar remains the medium of exchange, the Government has directed business to display prices in both foreign currency and the local unit.
Finance and Economic Development Minister, Professor Mthuli Ncube unveiled the foreign currency income tax structure last Thursday in the National Assembly, while steering the Finance Bill.
The Bill seeks to give legal effect to the several measures that he introduced during the Mid Term Fiscal Policy Review statement that he presented in July this year.
Last Thursday, Prof Ncube unveiled income tax structure that will be applied simultaneously with those that would be levied in the Zimbabwean dollar.
The next level of taxation from the tax free threshold of US$350 is pegged up to US$1 500, which will be taxed at 20 percent.
Initially the Finance Bill had pegged income tax free threshold of up US$840 but Prof Ncube moved to have them amended and reduced it to US$350.
The National Assembly also adopted amendments by Prof Ncube reducing the initial proposal to have the highest tax bracket of 40 percent pegged at US$36 000.
The highest tax bracket is now pegged at US$15 000.
In his Second Reading speech, Prof Ncube said the Bill sought to provide relief to tax payers and enhance disposable income, promote capital accumulation which is crucial in supporting the economic rebound and also to protect revenue sources.
He said the Bill also provides that royalties on the sale of minerals be paid in foreign currency if the amounts from which royalties are withheld are foreign currency amounts.
“The clause proposes to deem all mineral royalties to be receivable in US dollars unless the recipients of the amounts can furnish invoices or other documentary proof to the contrary,” said Prof Ncube.
He said in order to minimise the tax burden and also enhance disposable income, particularly given that most people were facing Covid-19 induced economic challenges, the Bill sought to raise income tax free threshold to $25 000 from $5 000 with effect from August.
“The Bill also seeks to exempt from income tax the receipts and accruals of the Victoria Falls Stock Exchange (VFSE) as part of the incentive package to facilitate establishment and full operationalisation of the Victoria Falls Stock Exchange,” he said.