Income tax brackets need review: Economists

Economists have called for an upward review of income tax bands to cushion and boost employees’ buying power in light of growing impact of inflation on disposable incomes, which has seen virtually all lower salary grades being included in the lowest and medium tax brackets.

The non-taxable threshold was last reviewed in January 2022 at US$25 000 and economists and businesses are arguing that it is now too low on the backdrop of a skyrocketing inflation rate.

Zimbabwe’s annual inflation, which touched a record low in two years to 50,1 percent in June last year in response to Government policy measures, jumped to 192 percent in June, the highest level in over a year, as food costs more than tripled.

Amid the exchange rate volatility, the Zimbabwe dollar now exchanges hands at between $600 and $700 against the greenback on the open market and $391/US$1 on the interbank market. This has had the effect of driving domestic inflation.

Notably, the war in Eastern Europe has also driven global inflation, which has reached record levels in both the western world and many parts of the emerging markets, especially due to price increases on energy and other key commodities like fertiliser and cooking oil, reacting to supply chain pressures.

With the cost of living constantly going up, economist Victor Bhoroma highlighted the taxable income threshold, especially for low income earners, was too low in this current environment, despite salary reviews for civil servants.

In May, the consumer council of Zimbabwe (CCZ) said a family of six required $120 000 a month to survive, while the inflation rate shot to 191,7 percent in June from 131,7 percent the previous month, further eroding the purchasing power of the local currency.

CCZ executive director Rose Mpofu said recently that while the absolute solution was to ensure stability of the local currency, which the Government is actively pursuing through a coterie of measures, adjusting taxable income thresholds would provide some relief.

Against this background, all eyes will be on Finance and Economic Development Minister Mthuli Ncube when he presents his 2022 Medium Term National Budget Statement review tentatively set for July 27, especially as this relates to giving hard pressed workers relief and measures to consolidate stabilisation of the local unit.

Clothing manufacturer Simon Udemba said the current pay as you earn (PAYE) threshold was no longer sustainable for workers with their disposable incomes highly eroded by inflation.

“With the current high inflationary trends in the country, worker’s disposable income has greatly been eroded.

“PAYE (Pay as you earn) threshold was last reviewed in December effective January 2022, but since then, the parallel market exchange rate has since skyrocketed, even the official rate also has moved.

“In the clothing industry, NEC (National Employment Council) does monthly increments following the inflationary trends, ZUPCO has increased fares 3 folds since January, if not 4 fold. Workers are earning much below the poverty datum line yet the Ministry of Finance still maintains the current PAYE threshold, which is not sustainable for workers,” he said. Mr Udemba added that trends at his clothing factory showed several workers were not coming to work citing high transport costs coupled with other living cost challenges.

The net effect of the situation was cascading down to business transactions where clothing retailers were cutting on orders citing depressed sales volumes due to low disposable incomes resulting in temporary shut-down of some factories.

“I think it’s long overdue PAYE threshold is being reviewed,” he said.

With the cost of living continuing to increase, market watchers have agreed it would be
ideal to review the taxable income thresholds to cushion workers who are already
constrained as the inflation rate has reached the triple digit level.

“It makes sense that the threshold be reviewed to enable the working class to have
improved buying power.

“Treasury is toying on a tightrope and it is time to lobby for a review, although he has to
be cautious about it. He can reduce the upper limit but the bottom limit has to move up,”
said Pan African Chamber of Commerce board member Langton Mabhanga.

The Treasury has acknowledged the concerns and admitted it was opportune to lobby for
review of taxable incomes in time for the Minister’s budget review statement.-The Herald