Treasury marginally cuts corporate tax, VAT in US$4b pro-production budget

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HARARE – (FinX) Finance and Economic Development Minister Mthuli Ncube has unveiled a $63.6 billion expenditure budget but with revenue of$ 58.6 billion, a deficit of around 1.5% of GDP is expected.  In US dollars, the expenditure  is at US$3.99 billion using today’s interbank rate of 15.9344.

The minister also marginally cut corporate tax (24% from 25%), VAT (14.5% from 15%) and increased the tax free threshold to $2 000 from $700 with effect from January 1, 2020 while  he introduced a tax credit of ZWL500 per month per employee for corporates that employ an additional employee in a year of assessment. The credit will, however, be limited to a maximum of ZWL60 000 per year of assessment.

Presenting the 2020 National Budget under the theme Gearing towards productivity, growth and job creativity, Ncube said the  main fiscal policy objective in 2020 is, directed at managing expenditure within the allocated supported by non-inflationary financing and complemented by a tight monetary policy framework.

To ensure its success, Ncube said he would deal with the macro-fiscal risks that may weigh down performance.  Some of the risks as outlined in an earlier report include; spending outside budget, subsidies and other market distortions as well as wage pressures.  https://mailchi.mp/fxzim.co.zw/risks-abound-as-mthuli-presents-a-pro-productivity-budget-1210025?e=ab64688a95

Ncube highlighted the successes achieved in his first budget, which included dealing with the twin deficit. “Implementation of fiscal consolidation reforms saw consistent monthly budget surpluses reaching ZWL$1.4 billion between January and August 2019. On the current account, we managed to deliver a positive balance of US$116.4 million during the first half of the year, which all pointed to positive signs for restoring the much needed macro-fiscal stability and elimination of the twin deficits.”

Ncube announced that Government, would with effect from January 2020 remove the existing grain marketing subsidies for maize and wheat, that were being provided to Grain Millers through the Grain Marketing Board. The intervention will see GMB selling wheat and maize at market prices, with Grain Millers having an option to either import or purchase grain from GMB. This means the prices of basic commodities such as bread and mealie meal may adjust.

However, in order, to protect vulnerable groups of our society, Government will extend targeted subsidies on the production of roller meal, cooking oil and the standard loaf of bread. Ncube said a reimbursement system will be implemented in order to extend the subsidy to the producers of roller meal, cooking oil and standard bread through tax set off arrangements where possible and voucher schemes.

On the other hand, subsidies on public transport will remain to cushion the commuting public against the rising cost of transport.

Further in order to further remove unbudgeted subsidies, as well as avoid their resurgence, Government will apply a single exchange rate regime throughout all sectors of the economy to avoid implicit subsidies arising from preferential allocation of foreign exchange at below-market exchange rates, as it was previously the case for fuel imports and other prioritised goods

In terms of financing modalities for Agriculture, Government reiterates the policy position of financing commercial agriculture, including Command from being Government-led to banks, with Government providing guarantees to banks. In the same vein, resolution of the bankability of the 99 Year Leases will gradually remove the necessity of the Government guarantees and boost productivity in agriculture.

Productivity enhancing measures

  • Embracing Climate Smart Agriculture (CSA) for better planning, shared financing burden between Government and private players, productivity which also relies on irrigation and marketing systems which guarantee farmer viability. There will be more forward planning to resolve the challenge of agriculture demands competing with other programmes for both domestic and forex resources during the last quarter of the year, which apparently coincides with the start of summer cropping season.
  • Minerals Marketing Corporation of Zimbabwe will be supported through a credit guarantee scheme to provide funding and support to non-gold sector.
  • Actualising value chains and implementing the Local Content Strategy, initially targeting support to the following sub-sectors:

 Pharmaceuticals;  Tyre production;  Hides/leather processing; and  Steel production.

Revenue measures to support productivity, growth and jobs

  • Excise Duty on Tobacco to ZWL$100 per 1 000 cigarettes from ZWL$50, with effect from 1 December 2019

Tax Relief Measures

  • Youth Employment Tax Credit to be claimed after the additional employee has served a

period of 12 consecutive months.

Tax free threshold moved to $2 000 from $700  and adjust the tax bands to begin at ZWL2 001 and end at ZWL50 000, above which the highest marginal tax rate of 40%, in line with economic developments, with effect from 1 January 2020.

  • Bonus Tax-Free Threshold at ZWL5 000 from ZWL1 000  with effect from 1 November 2019.
  • The non-taxable portion of the retrenchment package to $50 000 or one-third of the package, to maximum of $80 000 from $10 000
  • Intermediated Money Transfer Tax (IMTT) tax free threshold reviewed to ZWL$100 from ZWL$20 and the maximum tax payable per transaction by corporates from the current ZWL$15 000 to ZWL$25 000 for transactions with values exceeding ZWL$1 250 000.
  • Social transfers by Development Partners accredited in terms of the Privileges and Immunities Act [Cap 3:03] exempt from IMTT.
  • Corporate Income Tax revised to 24% from 25%.
  • Value Added Tax Rate reduced to 14,5% from 15% in order to stimulate aggregate demand.
  • Excise Duty on Fuel to ring-fence 5% of excise duty revenue collected on fuel towards the construction and rehabilitation of Beitbridge-Harare-Chirundu highway, with effective from 1 January 2020.

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