Businesses cautious on Mid-term budget review policies

Businesses believe that while the latest Mid-Term budget review brought some tax relief measures, it offered a blend of optimism and caution.

They say the recognition of policy recommendations from a diverse array of stakeholders by the Government is commendable, demonstrating a collaborative approach towards economic stability and growth.

“While the budget reflects significant efforts to stabilise the economy, some of our expectations were partially met.

“The legislative amendments following the abandonment of the Zimbabwean dollar and the introduction of the Zimbabwe Gold (ZiG) are crucial steps towards monetary stability,” said Zimbabwe National Chamber of Commerce (ZNCC) president Tapiwa Karoro.

The businesses had expected real tax cuts in the form of reduced Intermediated Money Transfer Tax (IMTT) on electronic transactions, a measure that businesses have decried as a huge cost burden.

“The IMTT should be reconsidered, as it counteracts financial inclusion efforts and increases the cost burden on businesses and consumers,” Karoro told Business Weekly.

He said the goals of the financial inclusion initiatives will not be reached with the IMTT in force, and as was reported, the IMTT contributed about 3.4 percent to total revenue in the first half of the year.

Comparatively, IMTT contributed about 8 percent to total revenue during the same period in 2022 and about 6,7 percent between January and June 2023.

Karoro said the IMTT, coupled with other taxes charged on bank transactions such as withdrawal levies, forces people to transact in hard cash, thereby reducing the amount of tax collected via such means.

“The IMTT has an incremental effect on the cost buildup of players in the supply chain, from the producer to the wholesaler, to the retailer, and the final consumer.

Adding VAT, the tax collected per transaction will be about 17 percent,” said Karoro.

He noted that the business position is that the IMTT is destructive as it is working against the Government’s thrust to promote the use of electronic means of payment and the financial inclusion drive.

“Therefore, it should be removed entirely, taking into consideration its dwindling contribution to Government revenue.”

Additionally, Karoro said mandating Micro, Small and Medium Enterprises (MSMEs) to use point-of-sale machines and maintain a ZIMRA-linked bank account enhances tax compliance and transparency, although it may pose initial challenges for small businesses.

He said the reason why MSMEs are reluctant to use POS machines is the costs associated with them, including the IMTT, withdrawal levies and user fees.

“It is, therefore, cost-effective for MSMEs to transact mostly in cash.

““The Reserve Bank of Zimbabwe, through its financial inclusion initiatives, has been moving in this direction of promoting electronic means of payment but with minimal progress as the target group is trying by all means to avoid electronic means of payment because of the stated reasons,” said Karoro.

He noted that the proposal to account for corporate income tax on a 50:50 basis or in line with the proportions in which income is earned is a flexible approach, reflecting the mixed-currency environment.

He indicated that with 80 percent of transactions being settled in foreign currency, it is a long road until that is reduced to warrant a return to a mono-currency regime, the inverse of the current scenario.

The ZNCC president said adding more sectors to those reserved for Zimbabwean citizens under the Indigenisation and Empowerment Act, such as pharmaceutical retailing and borehole drilling, aims to empower local entrepreneurs and ensure that key sectors of the economy benefit citizens.

Karoro said a similar policy move was muted by stakeholders at the 2024 ZNCC Annual Congress after numerous submissions that the retail sector was being taken over by foreign nationals.

“However, this policy should be carefully implemented to avoid negatively impacting foreign investment and partnerships,” he said.

Farai Mutambanengwe, founder and executive officer of SME Association of Zimbabwe, told Business Weekly that the budget review did provide some relief for SMEs, but there was the issue of presumptive taxes, which have been relaxed to a significant extent, although there are still some areas where they are still a concern.

“Then there was also the issue of reserved sectors, where we had raised an issue about certain sectors that are now being dominated by foreigners and yet those are low-hanging business modules that do not require a lot of capital, which could be done by locals.

“We find now, as locals, we are competing against some foreign investors in areas like retail trade, transport and among others.

“Those things have been addressed; however, the challenge still remains in terms of the core areas where we are facing difficulties,” he said.

He said the core areas have to do with the issue of the currency or the exchange rate and also access to foreign currency through the formal channels, where it is still very difficult.

“Accessing foreign currency through formal channels is almost impossible for most MSMEs, but at the same time, the only place where it can be accessed is the parallel market, but we then have the Financial Intelligence Unit (FIU) and even the police coming through on those things.

“The issue of bank charges is still prohibitive, and as a result, we are finding that people are preferring cash rather than using the formal financial services system,” said Mutambanengwe.

He noted the IMTT remains a deterrent, so despite the relaxing in certain areas, it may not really translate too much on the ground because of those core issues that remain.

Equity Axis, in its review of the mid-term budget, said the budget also failed to provide adjustments to mining royalties as well as taxes on lithium and platinum, given their current depressed pricing levels, which could have provided some relief to the industry.

It added that the failure to meaningfully address the surrender portion requirements for exporters, which currently stand at 25 percent, has also been a source of disappointment, but expected.-ebsuiensweekly