- Exporters expected a total cut-off retention or a minimum of 20%
- However, RBZ reduced them by only 15 percentage points to 25% which is still, usurious
Harare- Amid a polarised political and economic environment which is coupled with an expensive tax regime, fast depreciating currency and scarce US dollar liquidity, the business community has been lamenting over usurious 40% retention thresholds targeting exporters.
Confederation of Zimbabwe Industries (CZI), Zimbabwe National Chamber of Commerce (ZNCC) and Chamber of Mines have been calling for either total removal of the retention thresholds or reduce them to a range of at least 10%-20% for exporters to retain more foreign currency to increase production and productivity.
RioZim lost over 20% of its revenues due to retention thresholds resulting in a loss in 2021 while various projects were stalled due to foreign currency deficiency. Padenga Holdings lost US$9 million due to surrender taxes and exchange losses. Macadamia exporter, Ariston Holdings was on record warning that such exorbitant surrender mechanisms will retard exports exporters become victims.
To alleviate exporters, the RBZ governor, John Mangudya promised to respond positively to the industry’s call in a circular released in 2022.
However, during the latest Monetary Policy Statement released by the RBZ on the 2nd of February 2023, Mangudya only managed to slash retention thresholds by 15%, from a toxic 40% to another toxic 25%, not even closer to industry expectations.
Given the rapid depreciation of the local currency, retention thresholds inflate operating expenses for companies since 25% is surrendered at Auction Market rate while raw materials are priced using parallel market rate which boasts a premium of over 100% against the official rate.
Chamber of Mines Chief Executive was on record saying, “It is for the greater good that the retention thresholds be done away with and the authorities better make the local currency more attractive and store value to avoid depreciation effects.”
In a nation which is infested by low FDI inflows due to political toxicity and regressive economic policies, high business risk index and poor competitiveness ranking, there is a need to cushion exporters with incentives, and give them access to more foreign currency to increase production, thus, boosting exports of a nation to accumulate more forex.
RBZ’s retaining of 25% of Companies' foreign currency is hypocrisy given the high taxes paid by corporates, deficiency of the Foreign Currency Auction Market, recurrent drought spells and disruptions in global supply chains which are inflating prices of raw materials.
In 2021, RioZim recorded a loss citing retention thresholds a one of the contrubuitng factors as the Zimbabwe dollar component depreciated at an unanticipated pace.
Companies need more forex to import raw materials, for value addition and beneficiation, pay corporate taxes and finance borrowing costs. Thus, a 15% reduction is just a tease as the industry’s expectations are still not met.
