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Mthuli walks tightrope

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Business wants finance minister Mthuli Ncube to cut taxes on fuel to cushion companies and individuals adding that any price increase will have ripple effects on the economy.

In their submissions ahead of today’s midterm fiscal policy review statement, the Zimbabwe National Chamber of Commerce (ZNCC) said Ncube should cut taxes on fuel to cushion the general public from further basic commodities price hikes.

“We commend the government for heeding the call to remove the fuel levy on diesel. We expect the Honourable Minister of Finance and Economic Development to remove all excise duties on fuel on petrol similar to what was done on diesel,” ZNCC said.

“With fuel prices going up globally and fuel being one of the major cost drivers, the mid-term fiscal budget should address the impact of this cost burden on operations. There is a need to scrap the Road Haulage Fuel Import Duty of US$0.05/litre so as to reduce the cost of fuel in the economy.”

The price of fuel was this week reduced by US$0.04 and US$0.09 for diesel and petrol respectively, the third reduction in a month.

Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza told Business Times that several goods and services go up in every sector as fuel has multiplier effects on the entire economy with transport costs adding more to the inflationary pressures.

“[Minister] Ncube should cut taxes on fuel during his Mid-Term Budget Statement as addressing fuel problems could help to cushion the ailing economy,” Matsheza said.

In its submissions to Ncube, CZI said the government should try to address fuel taxes to cushion the economy against headwinds.

“It is necessary to align indirect taxes on fuel to regional counterparts such as Zambia and Mozambique to reduce cost or production and help to make Zimbabweans exports competitive,” CZI said.

Economist Gift Mugano said fuel price hikes have exacerbated goods and services prices as they have knock-on effects on the economy.

“It is high time that the government should relook at their pricing model of fuel as they should relook at some tax heads. For example, they should remove Zimbabwe National Road Administration road levy since we are getting that from the tollgate. Also take out the strategic reserve levy for the purposes of reducing the burden on the economy but that is not happening,” Mugano said.

The midterm fiscal policy review comes as all economic sectors called for the removal of the Intermediated Money Transfer tax (IMTT) as it is not an income tax but is actually a transaction tax.

ZNCC said the IMTT is ordinarily a tax charged on revenue rather than on an expense, as such one would not expect the tax calculated on the “taxable income” to be included as a deduction in the determination of the “taxable income”.

 “Currently, section 16(1) (d1) of the Income Tax Act prohibits the claiming of the tax on income as an expense for income tax calculation purposes.

“It should be noted however that the IMTT tax is a tax on an expense and not on revenue. IMTT therefore is in fact more of a cost/expense and such should qualify as a deduction the same way other transaction-based taxes such as customs duties, stamp duties are allowed as a deduction,” ZNCC said.

“When 2% IMTT was introduced, the spirit of the tax was to bring into taxation the informal sector which was not being taxed. What it has done, however, is to overly tax the formal taxpayers. It cannot be emphasised how the intermediate transaction tax has a compounded effect on the supply chain due to the incremental tax charged from the producer to the consumer.”

The CZI said: “This issue must be of priority in the second half of the year. The country is witnessing an erosion of competitiveness as domestic prices rise, and various taxes are levied on business.”

The manufacturing sector said there is a need to boost aggregate demand on locally produced goods to enable consumers to buy.

“Industry needs a spending population to thrive; hence the midterm review should prioritise increasing the spending power of the population,” the CZI said.

“The Minister [Ncube] announced a 100% increase in civil servants’ salaries beginning 1 July 2022. However, with year-on-year inflation for June 2022 at 191.6%, the 100% wage increase does not match inflation. Thus, in real terms purchasing power of civil servants is diminishing which will have a huge impact of reducing aggregate demand.”

Added the CZI: “Disposable income of the general populace is greatly affected by the tax bands. The tax-free threshold is pegged at 25 000 which is now too low due to the prevailing inflationary environment. Using the official exchange rate, the tax-free threshold is US$68 and using the parallel market it is US$37, this is against a tax-free threshold of US$100 for those being paid in US$. Thus, workers earning ZWL$ are being overtaxed which reduces their disposable income, which in turn reduces aggregate demand.”

“To boost aggregate demand, the Mid-Term Budget Review must revise the tax bands upwards, and to hedge against inflation these tax bands must be CPI indexed, while also prioritising social safety nets to ensure that the vulnerable population can at least afford some basic needs, which industry would help meet.”

The Chamber of Mines of Zimbabwe (CoMZ) wants Ncube to reduce high royalty on diamonds which has made the precious mineral exports uncompetitive on the world market.

In its submissions, the CoMZ said the royalty for diamonds at 10% is among the highest in the region.

“The high royalty is undermining viability in the diamond sector, which continues to be weighed down by a high-cost structure on the back of high input costs, high fiscal charges and unsustainable cost of capital,” the chamber said .

“The situation is worse for kimberlitic diamond producers such as Murowa Diamonds which requires huge costs to extract.”

The chamber added: “We propose that to restore viability in the diamond industry, diamond producers are appealing for a downward review in royalty to around 7% in line with regional averages as well as the overall cost structure in the diamond sector.”

The midterm review comes as the tax base is dwindling and the government is also battling to fund unsustainable expenditure.

Fear abounds that the local currency will continue to depreciate against major currencies. The business environment has also been marred by high taxes and disastrous policies, according to business.

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