No joy in Mthuli Ncube's budget

CALLS by Zimbabwe's restive civil service for United States dollar salaries went unheeded by Finance minister Mthuli Ncube yesterday.

Ncube doubled the national budget to $1,9 trillion as a result of rising inflation and a weakening local currency.

Presenting his 2022 Mid-Term Review and Supplementary Budget speech in Parliament, Ncube pegged expenditure projections for the year at $1,9 trillion, with additional spending of $929 billion from $968,3 billion originally.

There was nothing to celebrate for the working public, with Ncube doubling the tax-free threshold to $600 000 per year, or $50 000 per month from August 1 despite inflation hitting 191,60% in June.

Tax bands now end at $12 million from $6 million per annum after which tax will be charged at 40%. He also raised the Zimdollar tax-free bonus threshold to $500 000 from $100 000.

In the case of corporates, he proposed to review the maximum tax payable per transaction from the current $1 320 000 to $3 300 000 on transactions with values exceeding $165 million.

Platinum miners face more pain after government raised royalties to 5% from January next year, while lithium producers will also pay a similar rate. The platinum miners are currently paying 2,5% in royalties. In comparison, gold miners pay royalties of up to 5%.

The minster said mines were contributing just 1,2% of gross domestic product in direct taxes, which he claimed was lower than the regional average of 2%.

Ncube also proposed to shut down businesses that owe the taxman, but are avoiding having their accounts garnished by simply moving their money to other accounts, until they settle their obligations.

As at June 30, 2022, the Zimbabwe Revenue Authority was owed $23,05 billion in unpaid taxes.

Ncube also maintained the despised 2% tax on electronic money transfers, which will now apply to transactions above $2 500, up from $1 000 previously.

"In the case of foreign currency denominated transfers, I propose to review the maximum tax payable per transaction from US$10 000 to US$20 000 on transactions with values exceeding US$500 000," Ncube said.

The withholding tax of 10% of the value of commercial goods imported by cross-border traders was tripled to 30%, with effect from August 1, 2022.

Current legislation provides the productive sector with the opportunity to defer payment of value-added tax for a period not exceeding 180 days, in order to ease cash-flow challenges associated with importation of capital equipment.

"In order to safeguard fiscal revenues, as well as for ease of administration, I propose that the value of qualifying imported capital equipment be pegged at a minimum of US$500 000, with effect from 1 September 2022," Ncube added.

Under the new schedule, Agriculture has the highest vote, followed by Primary and Secondary Education and Health ministries.

The proposed supplementary budget has a financing gap of $157,5 billion (1,5% of GDP) which will be met through issuance of Treasury Bills and domestic loans. The issuance include the impending US dollar-denominated bond of US$100 million to be issued through the Victoria Falls Securities Exchange for infrastructure development (road rehabilitation, health and irrigation infrastructure). This will also be complemented by a Special Drawing Rights drawdown equivalent to $6,6 billion.

Employment costs will gobble about 53% of the supplementary budget while $1,4 trillion will go towards recurrent expenditure.

"The bulk of the supplementary budget (53%) is going towards employment costs to cushion public servants against increasing cost of living. The balance of the additional resources is going towards meeting government consumables (18%), capital projects (19%) and social benefits (7%)," Ncube said.

"Government remains committed to addressing the welfare of civil servants in a fiscally sustainable manner. The challenges of yesteryear where the wage bill crowded out development expenditures should be avoided in order to create the right conditions for sustainable economic growth that will provide scope for payment of decent salaries to our hard-working workers. We are stepping up provision of non-monetary incentives to improve their welfare."

In view of the revised projected GDP growth of 4,6% and on account of high inflation and exchange rate depreciation, Ncube said, revenue collections to year end were now projected at $1,7 trillion.

Cumulative preliminary revenue collections for the period January to June 2022 amounted to $506,6 billion, against a target of $367,7 billion, resulting in a positive variance of $139 billion or 37,8% of estimated revenue.

"During the course of implementation of the budget, a number of challenges emerged including the following: Requirements to date to review salaries in order to improve the welfare of civil servants; increase in requests for funding, including for unbudgeted expenditures; depreciation of the local currency and erosion of budget provisions; increases in international prices of fuel and other critical raw materials, among other key services that have rendered most budget allocations inadequate; and rescoping of critical components in some projects due to unforeseen circumstances," Ncube said.

To sustain government operations to year end, an additional amount of $756,7 billion is being proposed to bring the total recurrent expenditure to $1,4 trillion for the year 2022. The proposed additional expenditures will enable the government to meet increasing employment costs, government operations and social benefits interventions.