Tax holidays will attract more capital, investors

Last week, the New Dispensation went a step further in showing the world that it can live up to its promises to investors by gazetting a five-year tax break incentive for Great Dyke Investments (GDI), a mining investment venture operating in Mashonaland West.

Investment incentives are the way to go if the country is to attract the much-need foreign and local capital.

In this world of cut-throat business as globalisation takes its toll on developing countries, bringing with it unequal competition, countries that offer more attractive incentives to investors are likely to attract more attention.

Well, there has been an unending debate on whether or not foreign direct investment and any other investment for that matter is good for the development of emerging economies.

While the debate is raging on, there are a number of countries, especially the Asian economic giants like China, Singapore and Republic of Korea that point to both foreign and local investors as the basis for their economic success.

It is a fact that developing countries like Zimbabwe can actually improve their development agenda if they embrace the promotion of both foreign and local investment.

But what should be borne in mind is that investors do not arrive on our shores by conjecture.

They make deliberate moves that are well informed on what benefits will accrue to their investments and the return on capital.

The investors first scan the environment before they decide to commit their capital and need assurances that they can reap their rewards.

This is where incentives of whatever nature come in and play an important role in the attraction of the investors.

What is important for the authorities is to balance the game and ensure that the incentives do not erode what the country stands to benefit from the investment.

This argument is being made in the context of the exciting move by Government on GDI.

GDI, a mining entity, is a joint venture between Russia’s Vi Holdings and Zimbabwe’s Landela Mining Venture (Pvt) Limited and is investing US$3 billion into a platinum project in Darwendale.

According to an Extraordinary Government Gazette dated January 27, 2021, Finance and Economic Development Minister Professor Mthuli Ncube, granted the exemption in terms of the Income Tax Act (Chapter 23:06).

What is important about this tax incentive is that it is a huge statement by the Government of Zimbabwe that it is ready to listen to investors’ concerns when it comes to offering them benefits to realise their dreams.

In fact, the offering of such incentives gives Zimbabwe a competitive edge in terms of attracting both foreign and local investors.

Such a move underlines the country’s policy on “Zimbabwe is Open for Business”, as more investors are likely to be attracted by such incentives.

Most importantly, the extension of the tax incentive to GDI is significant in that it demonstrates the spirit of the New Dispensation on fulfilling its promises.

Before the incentives were gazetted, they were obviously discussed in meetings, including when President Mnangagwa visited Russia in 2019, where the mining agreement was signed in Moscow in his presence and that of Russian President Vladimir Putin.

The fulfilment of the promise becomes a huge testimonial to investors that Zimbabwe respects agreements and sees through its commitment to them.

This is going to increase interest among investors to bring their capital because they know they can rely on the word of the authorities in terms of how they will operate.

As pointed above, Zimbabwe is not new in this business and is not the first country to offer such tax incentives to investors, who have the habit of comparing destinations, usually based on what is on offer.

In fact, the use of incentives is so widespread to the extent that investors use it as a barometer to gauge the preparedness of a country to receive their capital. If Zimbabwe continues on this path, it can easily sway prospective investors by offering them terms that are acceptable for their businesses to take off.

Enter the Zimbabwe Investment and Development Agency (ZIDA)

Authorities at the newly-established ZIDA will have to draft incentives for investors, which will ensure that the country attracts their attention.

These incentives should be made public and published on platforms where they can be easily accessed by would-be investors.

ZIDA is already empowered by the attendant Act to come up with such incentives, which will cut across all investment sectors.

In the past, it was a widely held view by investors that there were no clear incentives offered in Zimbabwe and in some cases, organisations dealing with investments issued conflicting statements on the issue.

In fact, there were too many organisations dealing with investors to such an extent there were no harmonised incentives, with each entity offering what it could. All this is expected to end with the establishment of ZIDA, a one-stop shop investment vehicle that will handle all matter relating to investors under one roof.

What is important is that the ZIDA Act is clear on how incentives will be set and how they will be applied.

According to the Act, guidelines for incentives for investments will be published by the Minister responsible for Finance.

These guidelines will mention: (a) general incentives that may be applicable to licensed investors, whether foreign or domestic (b) special incentives that may be applicable to specific categories of licensed investors such as primary producers, exporters, and investors involved in value-addition and import-substitution projects, whether foreign or domestic; and

(c) any other incentives and conditions that may be applicable to investors, whether foreign or domestic; and in so doing, ZIDA may specify different incentives for domestic and foreign licensed investors.

If these rules are strictly followed, there will be transparency in the offering of incentives, a move that will help grab the attention of prospective investors.

Role of incentives

The role of incentives is mainly to stimulate investment, both local and foreign, which will eventually create employment and bring in more revenue in exports. The broad aim of offering such incentives is to ensure that investors consider a particular destination as favourable.

The incentives come in various categories, including financial and fiscal.

Financial incentives can include issues like grants and loans, while fiscal incentives come in the form of tax exemptions and reduced taxes.

Under fiscal incentives, there are a number of concessions that can be considered, including reduced corporate income tax, tax holidays, concessionary tax rates, accelerated depreciation allowances and duty drawbacks.

If ZIDA wants to attract investors in special economic zones, for instance, the investment authority will have to come up with incentives specifically relating to those interested in investing in these reserved areas.

The same applies to joint ventures and private sector special economic zones. It is important that Zimbabwe liberalises its policies to easily attract investors, especially in areas where it has an advantage like mining, agriculture, tourism and infrastructure development.

But incentives alone are not the magic bullet in the attraction of investors.

Investors can also be lured by economic stability, and Zimbabwe is in the right direction after Government managed to stabilise the economy in recent months.–herald.cl.zw