Thursday, 25 July 2024

MID-TERM BUDGET REVIEW : THE KEY HIGHLIGHTS

(NewZWire)Finance Minister Mthuli Ncube has presented his mid-term budget review to Parliament. In his statement, he lays out how much government has spent on roads this year. He has also introduced a set of new measures, including cutting presumptive tax while at the same making it harder for people to dodge tax.

Here are some of the key highlights.

Big road spending

Zimbabwe has spent the equivalent of US$182 million on transport infrastructure in the last six months, well above what had been budgeted for the whole year. The Ministry of Transport spent ZiG4.2 billion in the first six months of the year on infrastructure. Of this, Zig1.4 billion was spent on road projects, including the Beitbridge highway and the Mbudzi interchange. Another ZiG 1.1 billion was spent on the Emergency Road Rehabilitation Programme.

The ZiG4.2 billion road spending is the equivalent of US$304 million. When converted to ZiG, the total Transport budget for 2024 was ZiG1.74 billion. According to the budget statement, the Ministry of Transport had spent 224.5% of its annual budget by June. The spending on transport infrastructure is about 11% of the national budget. Government as accelerated road infrastructure construction in Harare ahead of the SADC summit in August. According to the budget statement, Government owes all its service providers about ZiG2.9 billion, equivalent to around US$211 million.

Villas and estates

The budget also reveals that Local Government has spent ZiG795 million – or US$58 million – to fix up summit venues; this includes the construction of villas in Mount Hampden, a project led by European contractor Mabetex. Other spending is on upgrades of HICC, which government owns and leases to RTG. Recently, RTG said the refurbishment would cost US$5 million. Another Zig175 million – or US$12.7 million – has been spent on “estate management”. Local Government also spent ZiG107.4 million – equivalent of US$7.8 million – on a “rapid bus transport system”, but no details are given.

Budget converted to ZiG

Ncube has converted his budget from ZWL to ZiG. The 2024 budget was ZWL$58.2 trillion, while the ZiG budget for the year will now be ZiG87.8 billion. Ncube has used a rate of 662 to convert the budget, which is different from the 2498 used when ZiG was announced in April. By using 662 and not 2498, Ncube has effectively increased the size of his budget.

Expect little economic growth

The economy will grow by just 2%, which is slower than the 3.5% that Ncube had projected in his 2024 budget. The biggest drop is in agriculture, which will shrink by -21%, feeling the impact of a drought that was worse than forecast. Ncube, however, expects the damage to be tempered by an expected growth in wheat output.

How much is government making?

In the six months to June, government collected ZiG36.5 billion and spent ZiG38.9 billion. Spending is 44.2% of the total approved budget. Most of government’s money comes from Value Added Tax. Transaction taxes make up just 3.4% of revenue, showing how dominant the informal market is.

 

Taxes: Little given

Many had pressed Ncube to cut taxes, especially the IMTT tax on electronic transactions, which businesses say is a damaging cost. However, Ncube has kept the tax. He has made changes to how companies pay taxes when they sell goods in forex and ZiG. If a company’s revenue is over 50% in forex, the company will pay Corporate Income Tax on a 50:50 basis. If the company’s revenue is over 50% in ZiG, tax is payable proportionately in the currency of trade.

Tax on manufacturers

If you are a manufacturer and you distribute your goods directly to wholesalers, retailers and individuals who are not registered for VAT, and have no tax clearance, you will now pay a 5% withholding tax. Ncube says this is necessary to “ensure tax compliance to minimise informalisation”. Manufacturers prefer selling directly to informal traders who pay upfront in USD cash. Formal retailers often offer terms in local currency, because they are held down by government’s exchange rate laws.

Forced: POS machines and bank accounts

If you run a small business, you will soon be forced to use a POS machine and have a bank account. Ncube has proposed that SMEs be forced to use Point-of-Sale machines and have a bank linked to Zimra. “The Ministries responsible for business licensing and registration will, in due course, announce complementary measures to enhance formalisation of Micro and Small Enterprises.”

ZiG Support

Ncube says fees for Government services shall exclusively be payable in local currency, “unless specifically provided otherwise”. The disclaimer indicates services such as passports may remain in forex. Ncube proposed that customs duty be paid in ZiG on goods such as citrus fruit, apple juice, leather and clothing accessories.

Presumptive tax down

Ncube has dropped presumptive taxes on a range of services. For example, a bottle store owner was supposed to pay US$300 per month in presumptive taxes, but now this is down to US$100. A trucker with a 20-ton truck was paying US$3,000 per month, and this is down to US$500. These taxes are to be paid only in ZiG.

No tax, no licence

If you are in the trucking, taxi or kombi business, you will no longer be licensed by ZINARA get vehicle insurance until you submit a ZIMRA tax clearance certificate, and show that you have no outstanding tax.

If you are an “independent professional”, such as a lawyer or an engineer, Ncube says you must be “graduated from Presumptive Tax to Self-Assessment for Corporate Income Tax purposes”. You will now have to submit your tax clearance through your professional body to be allowed to operate. For example, a lawyer will submit their tax clearance to the Law Society of Zimbabwe. This also applies to engineers, architects, doctors, real estate agents and accountants.

Thin tax relief

Ncube has removed VAT on live cattle, pigs, goats, sheep, bovine semen, poultry meat and kapenta. The Bonus Tax-Free threshold is now US$700 or the ZiG equivalent.