Mthuli Ncube raises VAT, restores duty on basics

Finance minister Mthuli Ncube unveiled his 2023 budget on Thursday, raising value added tax (VAT) in a move the main opposition Citizens Coalition for Change (CCC) described as "an attack on working people."

Ncube presented a Z$4.2 trillion (about US$6.5 billion) budget in Zimbabwe dollars, drawing brickbats from critics who say the government is now collecting a large portion of its taxes in foreign currency, hence the budget should have been presented in United States dollars.

Invoking Plato, Ncube said his budget was anchored on "prudence, temperance, fortitude and justice." In large part, however, he raised taxes and offered few breaks for taxpayers.

Citing a SADC average of 16 percent VAT, Ncube said: "Zimbabwe charges a comparatively lower rate of 14.5 percent. The VAT rate was reduced from 15 percent with effect from January 1, 2020, in order to support households during the peak period of the Covid-19 pandemic… I propose to reinstate the VAT rate to the previous rate of 15 percent with effect from January 1, 2023."

Consumers pay VAT when they buy food, pay for water, electricity and other services.

Ncube removed the suspension of duty on basic commodities, a blow to low-income families who are victims of unrelenting price increases as the Zimbabwe dollar weakens.

Early this year, the government suspended duty on commodities such as rice, maize meal, bath soap, cooking oil and maize meal amongst others.

Ncube justified the move by stating that prices had gone down following the stabilisation of the local currency.

"The suspension of duty, which expired on November 16, 2022, will not be extended. The government will, however, monitor prices of basic commodities with a view to ensure responsible pricing and affordability, failure of which the suspension will be reinstated," he told MPs at the new parliament building in Mt Hampden.

In one of a few give-aways, Ncube said he was reducing the Intermediate Money Transfer Tax (IMTT) on domestic foreign currency transfers from 4 percent to 2 percent – but only because "some entities are now preferring to settle transactions in cash instead of electronic transfers."

Ncube said he was considering a review of the 20 percent surrender requirement for domestic foreign currency transactions, which forces individuals and companies to give up a portion of their money at the government's discredited exchange rate, which was 646 to the United States dollar this week and as high as 900 on the parallel market.

Former finance minister Tendai Biti, now deputy leader of the CCC, said Ncube's projection that the economy would grow by 3.8 percent in 2023 was "ambitious and based on unsound assumptions," arguing it "ignores the shrinkage of the global economy, the effects of the Russia-Ukraine war and the natural freeze of an election year."

Ncube said the economy was expected to grow by 4 percent in 2022, a further downward revision from the mid-year projection of 4.6 percent. He blamed "global and domestic developments, particularly the impact of high inflation and resultant stabilisation measures" for the revision.

Biti said Zimbabwe was in the middle of a "structural economic crises characterised by poverty, disequilibrium, high inflation, an exchange rate problem and a total collapse of public services" which had plunged the country into its third "self-induced recession in 20 years."

Fuelling the crisis, Biti said, was "high borrowing costs, relentless inflation and a squeeze on government payments to contractors."

"The seismic headwinds required boldness, honesty and brinkmanship, Sadly the budget presented today was a banal self-serving ritual in narcissism and power retention excesses months before the 2023 election," Biti opined.

Ncube offered no specifics on pay increases for restive civil servants, setting the stage for further confrontations with public sector workers in an election year. He, however, said 52.4 percent of the total expenditure for 2023 would be spent on employment costs, rising from 42.3 percent this year.

"An honest budget ought to have been presented in United States dollars," said Biti. "After all, more than half of government taxes are now being collected in US$. This would then have allowed civil servants to be paid in US$. This would also have required the government to simply dollarise as the exchange control mess, right at the centre of Zimbabwe's macroeconomic instability must be resolved by dollarisation, floating of the Zimbabwe dollar, scrapping the forex auction and the gold coin."

Biti warns the "mess of multiple exchange rates" will continue "with consequent pricing distortions."

According to Biti, the restoration of duties on basic commodities particularly while approaching a festive season is "equally sadistic and bankrupt" and the imposition of mining royalties to be paid partly in actual minerals "is equally zany."

"Apart from gold, how does one pay chrome, coal or a PMG as a tax?"

Ncube allocated the highest budget – Z$631.2 billion – to the primary and secondary education ministry as he repeated a promise for free education at primary school level. Health pegged second with a Z$473 billion vote followed by lands and agriculture (Z$362.5 billion) and defence (Z$331 billion).

"The underfunding of the health budget (11 percent) and public education is an indictment," Biti said. "However, the pumping of huge resources into command agriculture betrays that this is an election year and that the 2023 budget is a power retention agenda. Truth is Ncube and Zanu-PF have failed and the 2023 budget is exhibit A of craft incompetence."