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Business Reporter

CENTRAL and local Government should give the foreign exchange auction the opportunity to operate efficiently by levying taxes and fees in local currency to create demand for the Zimbabwe dollar, industry says.

The Reserve Bank of Zimbabwe introduced the foreign exchange auction system in June this year after unsuccessful use of the interbank and the fixed rate regime, which had been adopted in March to ensure price stability following the outbreak of coronavirus.

The call by industry to entrench use of the Zimbabwe dollar as the anchor currency comes as the economy has seen increased usage of the US dollar in transacting, including Government payment of allowances, collection of levies, taxes and fees and in formal and fuel sectors, wages and salaries, large supermarkets, medical services, educational services.

Zimbabwe dollar tax revenue constitutes 97  percent of total revenue and levying value added tax (VAT), pay as you earn (PAYE) and income taxes in local currency should go a long way in creating demand for the local currency as taxes contribute significantly to revenue.

This comes after Zimbabwe early last year reintroduced its domestic currency, the Zimbabwe dollar, almost 10 years after scrapping it due to hyperinflation and adopting US dollar anchored multi-currency. But the local currency has suffered extensive depreciation against the US dollar since being floated  on the interbank market  last year, against the backdrop of acute shortage of forex, import dependency, constrained production and massive speculative currency trading.

In research note on the June inflation, which saw the annual rate dropping from 785,6 percent in May 2020  to 7373, the Confederation of Zimbabwe Industries  (CZI) said tax on income and profits contributes 32 percent, VAT 23  percent and taxes on financial and capital transactions 13 percent.

“Levying taxes in local currency should increase demand for the local currency and this should have positive effects on exchange rate and inflation,” CZI said in the research note.

The business community, CZI said, is still a little sceptical about the sustainability of the foreign exchange auction market, given the currency ambiguity obtaining in the economy.

Uncertainty is heightened by persistent policy reversals.

As authorities announce de-dollarisation, the re-dollarisation tidal wave is gaining steam in the economy as economic agents can now transact in multi currencies since March 2020,” CZI added.

The industrial body also noted that the  Government was  possibly fuelling the dollarisation process by demanding certain taxes and fees in foreign currency.

As a result of Covid-19, some businesses are not sure if they will be able to resume operations after the lockdown due to cash flow difficulties and subdued demand.

Those that have resumed operations are functioning in a high cost environment. Covid-19 which is novel, has increased uncertainty levels in an economy which was already existing in low confidence levels as a result of policy inconsistencies.