• Reforms Fall Short of Expectations: The budget introduced only limited tax relief measures
  • New Taxes Introduced: The budget introduced new taxes on electronic cigarette products and on manufacturers
  • Select Tax Relief Measures: The budget did include some targeted tax relief, such as a VAT exemption, Beverage Sugar Content Surtax

Harare- In the latest mid-term budget announcement, Minister of Finance, and Economic Development, Professor Mthuli Ncube, has fallen short of meeting the diverse fiscal expectations of both the industry stakeholders and the general public.

While the budget did introduce some targeted tax relief measures on select products, these concessions are largely inconsequential, as they fail to significantly impact the broader populace.

The much-anticipated real tax cuts were slated to come in the form of reduced Intermediated Money Transfer Tax (IMTT) on electronic transactions, a measure that businesses have decried as an onerous cost burden.

Additionally, the budget failed adjustments to mining royalties, as well as taxes on lithium and platinum, given their current depressed pricing levels. These changes would have provided some relief to the industry.

The failure to meaningfully address the surrender portion requirements for exporters, which currently stand at 25%, has also been a source of disappointment, but expected. The Zimbabwe Gold (ZiG) has plunged by 46% on the parallel market in July alone, underscoring the need for a more balanced and favorable export support framework.

These tax cuts were seen as key areas that would have a significant impact not only on Zimbabwe's economy, but on the general populace as a whole.

New Taxes Introduced

Mthuli Ncube introduced new taxes on electronic cigarettes. Effective August 1, 2024, electronic cigarette products will be subject to an excise duty of US$0.5 per millilitre of contents. If an electronic cigarette product does not have labels specifying the content, it will be deemed to contain 10ml of liquid.

Additionally, manufacturers who sell directly to wholesalers, retailers, and individuals who are not registered for VAT purposes and do not have a valid Tax Clearance Certificate will be required to pay a 5% Withholding Tax. This measure aims to ensure tax compliance and minimize the informalization of the market.

Manufacturers often prefer to sell directly to informal traders who can pay upfront in US dollars in cash. This is in contrast to formal retailers, who are held back by the government's exchange rate laws and often offer payment terms in the local currency.

Tax Relief Measures

Livestock and Meat VAT Exemption

Effective August 1, 2024, the government has implemented a value-added tax (VAT) exemption on the sale of cattle, pigs, goats, sheep, poultry, kapenta, and bovine semen. This fiscal policy intervention is intended to alleviate the tax burden on the domestic livestock and meat production sectors, potentially enhancing their competitiveness and encouraging investment and growth within these industries.

Waiver Beverage Sugar Content Surtax

The government has waived the payment of the Special Surtax on Beverages Sugar Content for the period of January 1, 2024 to February 8, 2024 for operators who had already remitted the tax. This temporary suspension of the surtax aims to provide immediate relief to beverage manufacturers and distributors, potentially mitigating the impact of the sugar tax on their profitability and cash flows.

Corporate Tax Payment in Dual Currencies

Companies whose revenue exceeds 50% in foreign currency will be required to pay their Corporate Income Tax on a 50:50 basis in foreign and local currency. Conversely, companies whose revenue exceeds 50% in local currency will pay their tax proportionately in the currency of their trade. This policy measure is intended to promote the use of the local currency and support the government's broader monetary and exchange rate management objectives.

Customs Duty in Local Currency for Selected Finished Products

Effective August 1, 2024, selected finished products, including cheese, citrus fruit, apple juice, waffles and wafers, leather, and clothing accessories, will be subject to customs duty payments in the local currency. This initiative aims to incentivize the importation of these goods, potentially enhancing consumer access and affordability, while also supporting the government's efforts to manage foreign currency reserves and promote domestic economic activity.

Bonus Tax-Free Threshold Adjustment

The Bonus Tax-Free Threshold, a key personal income tax exemption, will be adjusted to US$700 or the local currency equivalent at the time of remuneration. This adjustment is likely intended to provide some degree of tax relief for individual taxpayers, potentially increasing their disposable income and purchasing power. This is despite high unemployment rate in Zimbabwe.

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