2023 Budget preview: What to expect next week

It is that time of the year again when the Finance and Economic Development Minister is expected to present the national budget statement to parliament.

Tentatively the Treasury has chosen next week Thursday as the day Finance Minister, Prof Mthuli Ncube will present his 2023 National Budget in which he is expected to continue with his thrust towards infrastructure development and complement the contractionary monetary policy being pursued.

Analysts have said the budget will probably move to balance with the current monetary policy stance, as the minister and the reserve bank governor have been speaking in one voice of late.

FBC Securities research analyst Enoch Rukarwa on budget expectations said, “Whilst the government would want to solidify gains made thus far from utilising a contractionary monetary stance, a contractionary fiscal policy would be most appropriate to maintain the status quo.

“However, we implore this be pursued with moderate flexibility in growth sectors like mining, agriculture, construction and power generation to ensure desired growth for 2023,” Rukarwa added.

Economist Dr Alfred Mtimukhulu said, “Hope is that there are more policies in the budget to build momentum and interest in export processing centres as well as drive the vision of making Victoria Falls an International Financial Centre.”

Another economist Takudzwa Maradze said, “Hope of the budget will most likely lie in the participation of the private sector in bringing the other sectors of the economy to record growth, namely mining, industry, energy and tourism. The four sectors in 2022 got a total allocation of 1,5 percent or $13,1 billion of the proposed budget.”

Other analysts said Treasury will be looking at capital investments by the private sector with it just focusing on the ease of doing business.

Prof Ncube is on record saying in the energy sector, more power generation is going to come from Independent Power Producers (IPPS) as his office targets rural electrification and repairs and maintenance of existing structures.

Questions on how to fix power issues have arisen as they are critical to the production capacity of any nation.

Economist Prof Tony Hawkins said, “The country is being plagued by power shortages, despite the prospect of Hwange 7&8 to bring power into the grid, Kariba is a worry due to insufficient rains to fill the dam and coal shortages, Treasury needs to deal with the issue as an emergency.

“We witnessed many breakdowns this year and IPPs are being paid in local currency which is not motivational enough for such a critical part of the economy.”

The veteran economist, however, added that the budget will be more of adjusting taxes than anything surprising. He added that the budget will be lukewarm and try to keep the trajectory which they are on in order to stay on the positive lane.

On the Intermediated Money Transfer Tax Chamber of Mines President Isaac Kwesu said since the tax is also levied on formal businesses that pay corporate tax, the budget should make the transaction tax be deductible from corporate tax or Value Added Tax (VAT) as is the case with other transaction taxes.

The argument is that this will provide relief to all hard-pressed tax-compliant businesses.

The Intermediated Money Transfer Tax (IMTT) is a transaction tax accrued at various levels by businesses. Treasury sees it as a way to tax the informal sector and get a slice of the sector in contributing to the country’s fiscus.

Zimbabwe National Chamber of Commerce (ZNCC) in its submissions also highlighted the need to adjust the IMTT as it is ending up being a burden to the consumer.

“IMTT is not tax deductible. Its application has to be different between businesses and consumers. The burden of the IMTT tax is huge on business and therefore, the Chamber proposes that the Ministry of Finance and Economic Development should allow the IMTT to be tax deductible and it should be removed when remitting tax to ZIMRA,” ZNCC said.

The lobby group said the IMTT on foreign currency should be revised from 4 percent to 2 percent in order to level the playing field with regard to the taxes on the transfer of funds in both local and foreign currency.

“The 4 percent IMTT on foreign currency transactions is a disincentive to banking and has resulted in starving the supply of foreign currency liquidity to the formal banking channels,” said ZNCC.

Confederation of Zimbabwe Industries (CZI) in their budget submissions said there was a need to reduce the corporate tax rate to 15 percent for all the players that would be operating in the identified value chains.

This comes after Government has been highlighting the need to promote industrialisation through strengthening value chains that utilise local raw materials to strengthen synergies among sectors, especially the agriculture sector with manufacturing for inclusive growth.

The thrust was to review issuance of import licences and import duties on both imported raw materials and finished products to encourage and incentivise local producers.

However, there has not been much movement in this respect, as a number of products that are locally available are being displaced by imported products due to various reasons.

Strategic value chains have been identified in previous budget statements but the necessary policy and support measures to incentivise the building of local capacities in the value chains are still missing.

According to CZI, since 2019, the National Budget Statements have been underlining the important role that having some form of security for land is critical in unlocking private sector financing of agriculture.

The issue of having the 99-year leases become truly bankable has continued to characterise policy discourse with no solution having been found. The understanding is that the current draft lease has been accepted as technically sound but concern exists that political economy issues will mean that in practice courts will not uphold enforcement of judgments on 99-year leases.

“Our recommendation is that government needs to reassure the banking sector that it is fully committed to upholding the enforcement of judgements where borrowers use 99-year leases as security default. This might be done via a strong Presidential Statement,” CZI added.

Lobby groups are advocating for major policy shifts but economists and analysts are saying the budget will be contractionary in order not to disturb the status quo.-ebusinessweekly