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Mthuli Ncube to slash PAYE, VAT

by Staff reporter
19 Jul 2019 at 09:41hrs | Views
Government has said it is considering lowering the income tax structure to stimulate demand for goods and services by reducing the Value Added Tax (VAT) and Pay As You Earn (PAYE) tax heads.

Finance and Economic Development Minister Mthuli Ncube, this week said the two tax heads were under consideration for downward adjustments.

He, however, emphasised that the Intermediate Money Transfer Tax (commonly referred to as the 2 percent tax), which was introduced last October is here to stay as it had clogged significant revenue leakages with regards to the taxation of corporates.

Indications from the Zimbabwe Revenue Authority (Zimra) — the main source of funding for the Government budget — are that out of around 300 000 registered tax payers, a mere 25 percent are compliant to their tax obligations.

This meant that the tax burden was weighing heavy on a few compliant companies and individuals.

"We introduced it (the 2 percent tax) because we had a gap to fill, and now it's closed. Big companies in particular were not remitting all the VAT and all the PAYE tax that they collected from customers and employees.

"They were keeping it, to a point where right now they are still holding about $3,5 billion, it's now higher with penalties reaching around $5 billion, so that was another gap," said Minister Ncube.

He added that the significant tax leakages had compromised the country's fiscus leading the previous Government to increase borrowings.

"And what happened was that in the previous dispensation, the Government started borrowing from the Reserve Bank to fill that hole because there was no money coming in from the taxpayers. $3 billion was borrowed, so we had a huge Government expenditure and there was this gap with the central bank, so we are still closing a few holes, things will stabilise and then eventually we will lower it.

"But at the same time we are reviewing as Treasury whether we can consider lowering other taxes other than this one (the 2 percent tax) because the advantage of the 2 percent tax is that it has 100 percent compliance. But things like VAT, even the PAYE we will look into those to see whether we can tweak and reduce these.

"But one thing we can do, for sure, in the next two weeks is to increase the threshold for income tax, at the moment its $350 per person, we are going to raise that, we are still fine-tuning the figures."

Official figures show that in 2018 gross collections for VAT on Local Sales amounted to US$1,15 billion against a target of US$959 million.

VAT in Zimbabwe is charged at a standard rate of 15 percent.

PAYE falls under the ‘individual tax' head, whose total collections amounted to US$860,41 million last year.  For 2018, that revenue head was the second highest contributor accounting for 17 percent of total revenue collections.

With regards to PAYE, the tax-free threshold for individual taxpayers currently stands at $300, while the rate of tax for individual taxpayers who earns remuneration of above $20 001,00 per month was set at 50 percent in 2014.

A tax reduction is likely to welcomes in several quarters as some observers perceive Zimbabwe's taxation system to be on the high end. The tax burden is measured by taking the total tax revenues received as a percentage of gross domestic product (GDP).

In respect of the tax revenue as a percent of GDP indicator, the World Bank provides data for Zimbabwe from 2009 to 2017.

And the average value for Zimbabwe during that period was 16,08 percent with a minimum of 9,2 percent in 2009 and a maximum of 18,06 percent in 2015.

Analysts contend that a lower income tax structure can act as an effective economic growth stimulant for the country insofar as it functions to drive up consumption demand in the economy.

They say the multiplier effect of a lower income tax rate on other taxes in the economy can be significant, for instance, low corporate tax is said to boost after-tax returns on investment thus encouraging more investment.

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Source - Business Weekly

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