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'Zimbabweans are already overtaxed'

by Staff reporter
03 Dec 2023 at 17:37hrs | Views
AMERICAN financial literacy website, Investopedia defines 'wealth tax' as a tax based on the market value of assets owned by a taxpayer.

A wealth tax is typically put on a 'high-net-worth' individual.

A high-net-worth individual is someone with liquid assets above a certain value, an important distinction as an economy has low, middle and high-income earners.

Currently, only four countries within the Organisation for Economic Co-operation levy a wealth tax based on high-net-worth individuals.

These are France, Norway, Spain and Switzerland.

As Investopedia explains, this is determined by assets minus liabilities which include properties, assets like stocks, bonds, commodities, cash, mutual funds, fine art, and alternative investments.

Presenting his 2024 budget last week, Finance minister Mthuli Ncube proposed a wealth tax levied at 1% of market value of tax payer's property worth at least US$$100 000.

Ncube's proposal has triggered outrage even as it remains mired in confusion as it lacks clarity on various issues including method of property assessment, method of payment of the tax and enforce ment of the proposal. Zimbabweans now refer to the wealth tax as the mansion tax. "Resources derived from the levy will be ring-fenced towards urban infrastructure development, in particular roads, water, sewer and community health centres," Ncube said.

"Principal private residential properties owned by elderly persons above 70 years will, however, be exempt from the tax."

Speaking at a post budget analysis breakfast meeting on Friday organised by our sister paper the Zimbabwe Independent, Oxlink Capital chief executive officer Brains Muchemwa questioned the logic behind Ncube's proposed wealth tax.

"The issue about the US$100 000 cheques (1% wealth tax on property worth US$100 000), for example, the US$100 000 value of cheques in general, what does it mean for the bankers that give mortgages?" Muchemwa asked.

"So, you are going to get a mortgage to buy a house that is US$200 000?"

Muchemwa said it was not clear how the properties would be evaluated for the purposes of the proposed tax.

"And, you know, even the valuation of property, it's all subjective," Muchemwa said.

"If you build a house in a particular place and other people keep building in the same place, it eventually pulls up the price.

"But, it doesn't necessarily mean that the cost of putting that house was more than US$100 000.

"It could be US$50 000 at the time but eventually, after five years, the value will go up...some of these taxation aspects need to be fine tuned in the budget."

Former Finance minister Tendai Biti said Zimbabweans were already overtaxed and the wealth tax will mean that property owners will have to pay multiple taxes.

"When you own a house, you pay a tax, annually called rates. Rates are taxes," Biti argued.

"When you own a house, you already have paid a tax that lawyers know well, that is called stamp duty.

"When you die and your children need to take over your house, they also have to pay another tax.

"Most of these house owners are pensioners who are earning $60 000 from NSSA (National Social Security Authority). How are they going to pay it?" he asked.

"There are other means to catch those who are not paying tax than the blanket 1% tax. "This tax is unprogressive."

Seasoned property expert Mike Juru said the definition of a high net worth individual should be expanded to include all assets rather than fixed assets.

"When people earn, they store their wealth," Juru said.

"You earn your money, you buy stocks, you earn your money, you buy properties, you earn your money, and invest somehow to store your wealth in the context that it is safe in this way.

"You earn your wealth and sometimes decide to keep it as cash. So, when somebody is holding cash they are not considered in this wealth matrix, you are only looking at someone who owns houses?"

Juru echoed Biti's sentiments saying Ncube's wealth tax lacked logic.

"What of someone who owns stocks? That is wealth, what of someone who owns cash? "That is wealth," he said.

"Now, we are saying only someone who owns a house must pay tax.

"What of someone who owns commercial properties? Yet we are looking only at someone who owns mansions."

"We have got some people who are big time investors in commercial properties.

"We also still need clarity on what it means if the property is owned in a company and someone owns the shares in that company; who is taxed?"

Juru said there was need for clarity on how the properties will be levied.

"This thing needs to be debated in Parliament and we need to examine this more," he said.

"The minister needs to explain the implementation and enforcement part of it."

Tax Management Services managing director Tendai Mavima queried how the tax would be paid.

"Tax is paid when income is earned," Mavima said.

"If I have a property worth US$200 000 or US$1 million and I have not sold it; I am using it and I'm not earning income from it.

"And suddenly when you put a 1% tax on me, from what incomes do I now pay the 1% tax?"

Mavima said Zimbabweans were being punished for owning properties.

"But if I pay tax on the property, and I can prove that I worked before, and I was earning US$10 000 a month, I saved US$5 000 every month, and after 10 years or 20 years built this house with US$200 000 or whatever, why should I now be penalised for having built a house or having created wealth?" he asked.

"So why should I be penalised for having acquired a property? Effectively, this whole tax regime is meant to penalise people who have acquired a property.

"But, in most cases now, the people who have been penalised more are the poor because those who are rich and who are wealthy, they will have several properties, but they will never have a property in their name."

Mavima said wealthy individuals put their assets under trusts, corporations, the names of family members, and associates.

"If you do an evaluation of a property, there's what is called the-forced-to-sell value. There's willing buyer, willing seller value," he said.

"There are all sorts of values that can be put up there, valuation of a property.

"How then will the tax on the properties be levied?

"Do you take the forced-to-sell value or the open market value?"

"You know, if you go to an estate agent, they will tell you, as we look at the open market value of a property, in terms of valuation of properties, there are different ways and the property can have three or four values.

"But all those three or four values will be related to the market value of the property." Meanwhile, Bulawayo mayor David Coltart said the proposed new tax on properties will impinge upon local authorities' right to levy rates against property owners within cities.

"Whilst the tax is in principle problematic, it is made worse by virtue of the fact that it will go to central government with no guarantee that money will come back fairly," Coltart said on X, formely Twitter.

"The City of Bulawayo has already suffered greatly since car license fees were sent to (the Zimbabwe National Road Administration) Zinara rather than Bulawayo City Council.

"Likewise, although Bulawayo built five dams using ratepayers' money, it now has to buy the water stored in those dams from (the Zimbabwe National Water Authority) Zinwa.

"The fact is that we get a fraction of the money paid to Zinara, which is impacting on our roads. The same applies to Zinwa"

The mayor from the opposition Citizens Coalition for Change added: "The city could have built more dams if it had been able to invest money it pays to Zinwa.

"Now government wants to take further money based on the value of houses in Bulawayo.

"We have no guarantee that this money will come back to Bulawayo — indeed history shows that it won't come back fairly.

"For that reason this new tax is completely unacceptable. If it is to be levied then it must be paid directly to local city and town councils so that they can determine how to use it.

"If the principle of devolution is to be respected then it is critical that local authorities be given the financial power to develop the cities/town they are responsible for."

Bulawayo and Harare councils often complain that the money they receive from Zinara is far too little to help maintain road infrastructure.

Source - the standard