Tax-free threshold reviews hopeless as inflation soars

Harare- Zimbabwe is hard hit with hyperinflation and this has seen the erosion of income, especially for the low-income earners in the civil service despite the government taking measures to cushion them against some of the challenges they are facing due to low income.

The last time the government reviewed salaries, they pegged the lowest civil servant salary at ZWL$1 023, which the civil servants are complaining is not enough amid the increase in prices of basic commodities.

 The Minister of Finance and Economic Development, Professor Mthuli Ncube in his 2020 budget presentation proposed to review the tax-free threshold for Personal Income Tax from ZWL$ 700 to ZWL$ 2 000 per month.

The tax bracket was then adjusted to start at ZWL$ 2001 and end at ZWL$ 50 000, where the highest marginal tax rate stands at 40% from 1 January 2020.

Under normal and stable conditions, these adjustments could have brought relief to the low-income earners, however, with the inflationary environment in the country this move, just like the bonuses paid out in November, will do little to ease the money shortages and to increase consumer spending power.

 The annual inflation rate in Zimbabwe climbed to 440.1 percent in October from 353 percent in the prior month.

This was largely driven by an increase in food, fuel, electricity and other commodities prices, while salaries have not gone up hence exacerbating their erosion.

Representatives from the Zimbabwe Congress of Trade Unions (ZCTU) stated that the bonuses they received in November did nothing to cushions them as was the intention because prices of goods and services continue to rise and some business operators are demanding payments for their goods and services in US Dollars which if they try to convert their salaries into will still be way less than the money  they earned before the use of the Zimbabwean Dollar and RTGS.

Employees from several companies and sectors have been taking industrial action against their employers in a bid to get them to pay them more or in US Dollars.

According to Africa Tax Administration Forum, in 2018, the personal income tax index contributed about 22 percent of total tax revenue on average in Zimbabwe.

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