Mthuli backs ZiG with more use cases

Finance, Economic Development and Investment Promotion Minister, Mthuli Ncube, has announced a cocktail of measures that are meant to create more demand for the use of the newly introduced Zimbabwe Gold (ZiG).

The country’s new local currency, (ZiG), was introduced in April 2024, but has limited use cases which threatens its long-term stability.

The ZiG has been relatively stable since inception with the average willing-buyer-willing-seller exchange rate trading between ZiG13 and ZiG15 to the US$1.

On the now illiquid parallel market, the ZiG remained stable at below ZiG20 to the greenback for more than three months although pockets of instability where starting to emerge in recent weeks.

Reserve Bank of Zimbabwe Governor, Dr John Mushayavanhu, has long recommended that 50 percent of Quarterly Payment Dates (QPDs) should be paid in ZiG to boost demand for the local currency.

Such a measure was, however, delayed from the requested 2nd quarter QPD payments as there was no enabling law compelling economic agencies to pay 50 percent in ZiG, but only in the proportion of the currency of trade.

Mthuli has, however, answered Mushayavanhu’s call and regularised the intervention in his Mid-Term Budget Review Statement which is now before Parliament.

“Going forward, I propose to amend legislation and compel any corporate whose revenue exceeds 50 percent in foreign currency to account for Corporate Income Tax on a 50:50 basis,” Mthuli told Parliament yesterday.

He added that where a company’s revenue exceeds 50 percent in local currency, tax shall be payable proportionately in the currency of trade thereof. Analysts have, however, felt that QPDs alone are not enough to boost demand for ZiG. They appealed for more use cases for ZiG beyond and above just QPDs.

In response, Mthuli announced more measures where tax payers will be compelled to pay tax in the local currency.

The emerging sector mainly comprising of Micro and Small Enterprises that has widely been transacting in cash and foreign currency, thus, undermining aspirations to promote financial inclusion and transparency, are now part of the tax net.

This is after Mthuli proposed payment of all Presumptive Taxes in local currency, regardless of currency of trade.

In order to promote the circulation of the ZiG within banking channels, curtail practices of money laundering, thereby combating financing of terrorism, Mthuli proposed that Micro and Small Enterprises be mandated to transact through Point-of-Sale Machines and operate a bank account linked to the Zimbabwe Revenue Authority.

Further, to promote usage of the local currency, Mthuli proposed payment of customs duty in local currency on selected finished goods that are, however, input into production in specified industries such as orange juice, clothing accessories and other articles of leather. This measure takes effect from 1 August 2024, said Mthuli.

User fees to all Ministries, Departments and Agencies (MDAs) which are pegged in foreign currency will now also be required to be exclusively paid in local currency.

Some of the user fees include the US$3 750 that is paid for application for a special mining lease, the US$110 that is paid for a bottle store licence in cities, and the US$850 paid by a five start hotel among others.

The Presumptive Tax on the basis of estimated income of persons engaging in specified trades was reduced by more than 50 percent but will now be payable exclusively in local currency.

In order to ensure compliance to the above tax structure, Mthuli proposed that Goods Vehicles, Taxi Cab or Commuter Omnibuses shall neither be licensed by ZINARA nor be eligible for vehicle insurance unless the operator submits clearance from the Commissioner General (ZIMRA) confirming that the operator is duly registered and has no outstanding tax debt.

Meanwhile, economic analyst, Kuda Mugova, said the new measures will, generally, help boost demand for the local currency.

“The good thing is that the measures are not disruptive and are focused on reducing the burden on businesses.

“One important point to make is that ZiG fair value must always be maintained otherwise the revenue of Government will shrink in real terms,” Mugova said.

He said the more interesting one is the vehicle registration and licence renewal, which will now be paid in ZiG as it will definitely shoot the ZiG demand up.

Mugova, however, expressed fear that the loss of USD revenue from those departments means they will now have to wait more forex allocations (interbank pressure) to fund any imports related spending.

Another market analyst, Walter Mandeya of Trigrams Investments, commended Government for taking market feedback “and come up with appropriate fiscal measures in support of the new currency, which has proven to be stable and resilient in the few months that it has been circulating”.

Mandeya said by accepting to take the ZiG for all user fees, presumptive taxes, certain duties and a greater proportion of income taxes, Government has demonstrated support for the local currency, which will gradually translate into increased trust by the general public, “a required attribute for any well functioning currency”.

“It is heartening to note that Government has taken a softer approach with their measures and we encourage the Monetary authorities to also adopt this approach and avoid unnecessarily penalising ordinary transactions expected under a multi-currency environment.”

Mandeya also described the proposal that Micro and Small Enterprises be mandated to transact through Point-of-Sale Machines and operate a bank account linked to the Zimbabwe Revenue Authority as “a game changer.”

With the new interventions in place, Mthuli expects inflationary pressures, domestic prices, and the ZiG exchange rate to remain stable up to December 2024 .-ebusinessweekly