Thursday 16th July saw Finance and Economic Development Minister Professor Mthuli Ncube present the mid-term budget review before parliament. There were a few highlights, shocks and mysteries in the budget presentation. The biggest highlight was the minister not presenting a supplementary budget. He stood firm that most ministries had not used half their budgets even though inflation rates on and dwarfs Zimbabwean dollar-denominated purchasing power.
Before we get to the meat let’s run through the highlights in list format;
- Economy expected to decline by 4.5% in 2020
- Ministries have spent 46% of 2020 budgets so far
- Crop harvests expected to decline by 0.2%
- Mining output expected to drop 4.1%
- Manufacturing to shed 10.8%
- Tourism expected to decline by 7.4%
- Power generation up 5.5% in Q1 2020 over Q4 2019
- 30% of government recurring expenditure goes to non-financial asset acquisition
- Tax revenue was dominated by Income-tax (32%), VAT (23%), Transaction Tax (13%), Excise duty (12%)
- FDI inflows expected to be down 40% compared to 2019
- Foreign currency inflows at US$2.55 billion compared to US$1.35 billion outflows.
- The tax-free threshold to be revised upwards
- 2% tax to apply to foreign currency transactions
- Income tax and Capital Gains Tax exemptions for Victoria Falls Stock Exchange and a lower 5%Dividend withholding tax.
Let’s just look at a few talking points from the highlights.
New tax-free threshold
The tax-free threshold was increased from ZWL$2,000 to ZWL$5,000. Tax bands will peak at ZWL$100,000 where the taxpayer will pay 40%. This is necessary though the developments in inflation and the poverty datum line make this too little too late.
2% tax on foreign currency transactions
Well, I guess this was expected sooner or later. With the reintroduction of foreign currency transacting the revenues from the Intermediated Money Transfer Tax were slowing. This tax will be on electronic transactions. Transactions below US$5 will not attract the tax while the tax peaks out at US$100,000. Zimbabwean dollar transactions had their hands adjusted to a minimum ZWL$300 and a maximum of ZWL$2,500,000.
Victoria Falls Stock Exchange
Minister Mthuli Ncube also put forward that companies that will list on the foreign currency-denominated Victoria Falls Stock Exchange will be exempted from income tax. Shareholders on the exchange will not be subject to Capital Gains Tax on sale of shares while their dividends will be taxed at a lower 5%compared to Zimbabwe Stock Exchange-listed shares 10% and unlisted shares 15%. This means that according to recent suggestions Old Mutual together with SeedCo International and PPC will operate tax-free if they make a switch to this exchange.
Government recurring expenditure features a large chunk of it (30%) going to non-financial asset acquisition. There is no further mention of this in the budget statement instead of choosing to focus on employment costs. In the interest of transparency, some explanation would be wise.
Overall everything is expected to be down. However, the minister displayed optimism in his assessment of the GDP situation forecasting a 4.5% contraction when international observers had cast Zimbabwe to shrink by more than 10%. The lack of supplementary budget is welcome but with much concern as inflation is a reality that has diminished purchasing power despite the optimism the minister has shown in the past.