2021 Budget – a Bitter Pill to Swallow

The 2021 budget presented by Finance minister Mthuli Ncube last week missed a golden opportunity to stimulate various productive sectors of the economy. Instead the government piled more taxes on its already over-taxed citizens.

A week before the budget announcement, Ncube presented a precursor to it, an economic blueprint dubbed the National Development Strategy (NDS1) through which he set the tone for ambitious plans to turn around the economy. But critics warned that without the political will to wring far reaching reforms, the plan was already dead in the water.

Zimbabwe has failed to secure new loans from multilateral institutions after it defaulted on its debt repayments. The country owes US$8,2 billion in foreign debts.

With Zimbabwe in the throes of a debilitating multifaceted crisis compounded by severe headwinds of Covid-19, Ncube presented a ZW$421 billion (US$5,1 billion) budget against the expectation of ZW$1,1 trillion translating to US$13,4 billion requested by various ministries.

What was ubiquitous in the budget statement, which projected a 7,4% growth margin, was a massive jump in taxes targeting ordinary citizens as the cash-strapped government battles to shore up its dwindling revenue base in the face of an imploding manufacturing sector and dwindling exports.

In 1982, though the US was buffeted by economic challenges of a different nature to Zimbabwe’s intractable crisis, Ronald Reagan spoke against the futility of taxing citizens, noting that: “The idea that a nation can tax itself into prosperity is one of the crudest delusions which have ever befuddled the human mind”.

However, last week, the Treasury boss introduced a myriad of tax increases whose impact will be widely felt by the generality of citizens already contending with inflation in excess of 400%. Coupled with that, Zimbabwe’s fragile economy is also characterised by massive job losses, widespread company closures and a weak currency.

For a nation projecting revenue collection to stand at ZW$390 billion (about US$4,8 billion) creating a deficit of ZW$31 billion (about US$379,4 million), the bulk of resources from Zimbabwe’s 2021 budget will be channelled towards funding employment costs and other consumptive expenditure rather than stimulating productivity.

Bindura University commerce lecturer Felix Chari noted that with the cash-strapped government battling to shore up revenues, Treasury has resorted to the unenviable strategy to tax citizens.

“Mthuli Ncube’s 2021 budget has shown that the government has constraints in raising revenue and has, in a desperate move, introduced a range of new tax measures targeting the informal sector. More so, the budget has done little to stimulate economic growth through increasing capital expenditure,” Chari said.

For a country mired in frequent industrial job actions by its public service workforce, the generality of Zimbabwe’s workforce earning far below the poverty datum line pegged at ZW$18 750 (US$229) per month for a family of five, Ncube’s budget statement offered little in significantly reviewing taxable income.

The tax-free threshold was raised from ZW$5 000, nearly US$61 using the official exchange rate of US$1:ZW$81,7 to ZW$10 000 (US$122). On average civil servants, notably teachers and nurses earn about ZW$20 000 per month translating to about US$244.

Notably, the 2% tax levied from electronic transactions introduced in 2018 that sparked outrage from citizens will stay, but will not apply to payments below ZW$500 (US$6,11 from ZW$300 (US$3,67) commencing next year.

Contributing on the debate on whether Ncube’s budget statement will offer a respite to burdened citizens struggling to make ends meet, analysts contend that Zimbabweans will have to buckle their belts as the unpopular 2% tax is still in force.

With government chasing more tax dollars, professionals such as doctors, engineers and lawyers, will be obliged to dig deep in their pockets to pay $500 000 (US$6 119) in presumptive tax. Similarly, architects will pay ZW$250 000 (US$3 059), while realtors will part with ZW$1million (US$12 239) per month.

Though Ncube sought to jolt industrial productivity by channelling ZW$2,3 billion (US$28,1 million) to the Ministry of Industry and Commerce, but injecting the bulk of those resources into moribund Ziscosteel would be like pouring money into a bottomless pit.

With little fiscal space to manoeuvre Treasury will spread its tentacles to heavily tax the informal sector in a bid to boost revenue streams. Operators of flea markets and stalls sprouted in the central business district (CBD) will be charged an equivalent of US$30 per unit while restaurant and bottle store owners would be required to pay ZW$10 000 (US$122) per month.

The newly introduced tax regime will also affect landlords, whose tenants will be compelled to pay presumptive tax and alcohol consumers and smokers are facing increases in excise duty of 300% on tobacco and 600% on beer.

In terms of size, Ncube’s budget, slightly above US$5 billion, has remained unchanged from what it was a decade ago when the country adopted a multi-currency regime to stem the tide of runaway inflation, which had clobbered the local unit to worthlessness.

At the heart of Zimbabwe’s worsening crisis, Treasury is battling constrained fiscal space triggered by dwindling investment inflows and exports, crippling foreign currency shortages and the devastating effects of the novel coronavirus.

Though economist Brains Muchemwa contends that the informal sector should not be exempted from paying tax, he said Treasury should find strategies of reviving the country’s manufacturing base.

“The major challenge we have been having in this country is that there are a lot of businesses and Small-to-Medium Enterprises (SMEs) that are competing with established businesses but are not paying taxes,” he said.

Former Confederation of Zimbabwe Industries (CZI) president Sifelani Jabangwe noted that Ncube, while presenting the budget sought to address the country’s widening fiscal deficit without creating new money that will trigger the currency volatility crisis.

“The budget looks like an attempt to access additional taxes, particularly presumptive tax. The reason behind this is the problem of fiscal deficits which have tended to be financed by the creation of money resulting in the depreciation of the currency. As industry we would prefer a situation where certainly there is currency stability. The government seems to be aware of this.”

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