‘Non-tax revenue can broaden fiscal inflows’
Zimbabwe should consider non-tax revenue generation initiatives to broaden inflows into the fiscus given the potential negative impact of the El Nino weather phenomenon on the agriculture-dependent economy next year, strategic advisory firm Mark and Associates has said.
This comes after Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube said in his 2022 National Budget Statement presented last week that El Nino would weigh down on the 2023/24 cropping season, leading to poor harvests and slower economic growth.
Minister Ncube has projected the economy to slow down to 3,5 percent next year from 5,5 percent in 2023, due to the impact of the dry spells caused by El Nino as well as declining global mineral commodity prices.
The call for the Treasury to consider other non-tax revenue sources comes amid heated debate around some of the Treasury chief’s proposed tax measures, which some observers feel could exert further strain on stretched citizens.
Mark and Associates, in a report on the 2024 National Budget Statement said, “The Government of Zimbabwe should shift its focus on non-tax revenue-generating initiatives, which are anchored on investments.
“The operationalisation of the Mutapa Investment Fund (MIF) is strategic in this regard given the potential to turn around various state-owned enterprises and generate investment income for the National Treasury.”
The economic research firm said significant productivity headwinds associated with capital constraints, policy shifts, and electricity shortages would continue in the coming year, negatively affecting economic growth.
“Zimbabwe has been experiencing severe electricity load shedding attributable to technical challenges at thermal power generation plants coupled with falling dam levels (at Lake Kariba) and import constraints,” the company said.
However, Minister Ncube said national power generation would grow by 280 megawatts in 2024 due to Hwange Power Station units 7-8 optimally feeding into the national grade and units 1 to 6 refurbished while some independent power producers’ projects would also come online.
Mark and Associates said the lack of access to affordable international lines of credit to finance economic recovery and National Development Strategy 1 (NDS1) priority projects and programmes will continue to affect the country’s capacity to achieve its inclusive economic development goals.
Zimbabwe’s high public debt level relative to its gross domestic product (GDP) affects the country’s international financial credibility and ability to unlock low-cost credit and investment.
According to the finance minister, total public and publicly guaranteed (PPG) external debt for Zimbabwe amounted to US$12,7 billion as of the end of September 2023.
The research firm believes that the debt is weighing down the country’s development needs and will continue to negatively impact the country’s ability to meet its targets on Sustainable Development Goals, especially in health, education, and social protection.
“An analysis of the debt figures reveals that, out of the US$9,13 billion multilateral and bilateral debt, USD6,97 billion (76 percent) are principal arrears, interest arrears, and penalties. This demonstrates a serious need on the part of the Government of Zimbabwe to pursue serious engagement initiatives with creditors,” Mark and Associates noted.
An increase in taxes, Mark and Associates said, and not non-income tax, might push more people into poverty, hence the treasury needed to rethink some of the proposed measures.
“Our research demonstrates that the broader Zimbabwean populace is already overtaxed,” the research firm, adding an impact assessment on informal traders, micro-enterprises and SMEs should be carried out.
“A blanket 1,0 percent wealth tax across the board is unprogressive given that it does not consider the diverse profile of homeowners in Zimbabwe. There is a need to assess the impact of the tax measures on inflation.
“The focus should be on boosting confidence in the broader monetary system. This is key in promoting a culture of saving and investing,” Mark and Associates added.
As part of their recommendations, the company said the focus on competitive advantages should be increased as the country has been successful in the tobacco sector. It suggested the same model should be replicated and across other strategic crops including maize.
The research firm said the Government should prioritise building strategic grain reserves to mitigate external shocks like droughts and cyclones. It also called on the Government to double down on efforts to root out corruption, which President Mnangagwa declared war against since taking over the reins in 2017.
Mark and Associates reiterated that the Government should expose corruption to public scrutiny.
“Zimbabwe needs to do all the things every emerging nation has to do to attract foreign and regional partners to not just grow but survive in the new global economy,” the economic research and advisory firm said.