Thursday 1 August saw the midterm budget review and supplementary budget announced by Finance Minister Professor Mthuli Ncube in parliament. There are many issues that were touched on by the budget and here we are going to pick up on the highlights and their effects to the ordinary person and small businesses in the country.
Electricity Tariff increase
Electricity tariffs were increased as many had predicted with the budget. With an increase ranging between 3 and 5 times. Meanwhile, ZESA sought a 9 times tariff increase. Based on this and the fact that tariffs stand below importer power parity it is reasonable to expect that load shedding shall continue.
Tax-free threshold up to 700
The Pay as you earn (PAYE) tax-free threshold was increased from ZWL$350 to ZWL$700 per month. This was one of the few positive highlights of the budget as this means more disposable income at a household level for the small percentage who are formally employed. Many were expecting the threshold to be increased to ZWL$7000-2000.
2% tax adjustments
The Intermediated Money Transfer Tax (IMTT) received some attention with the transaction minimum that attracts the tax being increased to ZWL$20. The upper limit was also increased from ZWL$70000 to ZWL$70000. The tax will now apply to cash-out transactions meaning there really is no escaping it now.
Solar batteries now tax-free
Given the current energy challenges in the nation, a focus on alternative energy was to be expected. The minister heeded calls made by many to also make the batteries which were essential to good solar power systems duty-free. The minister duly complied by announcing that lithium-ion batteries would be duty-free.
Motorists were another major focus of the budget statement by the minister who included a raft of measures squarely aimed at them. Toll fees were increased 5 fold as follows;
Light Motor Vehicles from $2 to $10
Minibuses from $3 to $15
Buses from $4 to $20
Heavy Vehicles from $5 to $25
Haulage Trucks from $10 t0 $50
The rumoured increase in vehicle registration fees which Zinara strongly denied was delivered by the minister. All in all, it is reasonable to expect transportation costs to increase in response to this.
One of the biggest talking points has been the announcement that ZimStats would cease producing year-on-year inflation figures and only report month-on-month figures. The reasoning behind this was the difference in the bases of the price figures. The RTGS/Zim dollar only became the unit of account in February 2019 and any figures prior to that had the US dollar, which was in short supply and surrogated by the Bond note, as the unit of account. This, unfortunately, has come off as a confusing ploy by the minister because there are methods to re-base which would allow us to accurately measure movements. Furthermore, ZimStats has been accused of severely under-reporting inflation by academic Professor Steve Hanke among others who places Zimbabwe’s year on year inflation at 558% where ZimStat report 175.6%. A quick look here should show that Hanke’s logic is that the parallel market US dollar rate was around 1:3 at this time last year. This move, however, does little to address inflation that people will continue to grapple with.
Indigenisation law scrapped
It has been an incremental process and the most recent instalment has removed the outstanding areas that were still subject to majority indigenous shareholding. The approach to this policy has been all over the place in all honesty. It has produced some successes while also being a source of anguish for those seeking investment from abroad.
Infrastructure bonds coming
The finance minister also spoke on the desire to institute infrastructure bonds. Zimbabwe’s infrastructure funding gap has been valued at US$34 billion for the next 10 years by the Afreximbank. The minister has reiterated their intention to look at private funding via infrastructure bonds. However with inflation levels at 175% officially those bonds would require a very attractive interest rate to see the light of day.
Low investment in small business
There has regrettably been a very low investment in small business in this supplementary budget which amounts to less than 1%. Given the size of Zimbabwe’s informal sector and with the cost of doing business increasing some assistance to small businesses would have really been a welcome development.
With the unfolding of implementation plans, we will see more on how these policies will in effect be rolled out. This has been a sticking point in the past as implementation has not only lagged but also varied.