After the launch of the National Development Strategy 1 Zimbabweans expected a budget presentation that would move the nation forward. What we got yesterday from Finance Minister Professor Mthuli Ncube fell far short of this. The budget lacked any excitement, not a bad thing in itself. After all, economic stability is built on the sobriety of policies. While many eyes were on ministry allocations a much more interesting and important point of focus are the revenue measures. Let’s go through the highlights of yesterday’s budget presentation and try to make sense of the policies.2021 ZIMBABWE BUDGET HIGHLIGHTS (1935 downloads) 2021 ZIMBABWE BUDGET STATEMENT (4965 downloads)
One part of the budget presentation which was very interesting reading for me was the tables showing national economic data and forecasts. The economy is expected to shrink by 4.1% this year optimistic given it shrunk by 7% the previous year. The team at the ministry of finance expect the economy to grow by 7.4% in 2021. One thing we have become used to is a revision of GDP estimates, they are after all estimates. It seems that for some time now the Minister has chosen optimism over prudence and you can stand almost guaranteed those figures will be revised downward. Year on year inflation is expected to slow to 9%by the end of 2021. Another very optimistic figure but not entirely impossible. Though the government is targeting money supply growth of 25% per quarter (244% per year compounded) it expects prices in the same period to only budge 9%.
An area of concern with previous budgets has been allocations. It is well established that the government of Zimbabwe is cash strapped but the use of the little that is there has been criticised budget after budget. Areas such as health received increased proportions and there were also nods to both education ministries. Transport took a huge chunk as the government seems insistent on funding ZUPCO though we had been told in earlier communication that ZUPCO subsidies would end in December 2020. The transport allocation includes infrastructure development, another area the government has poorly resourced so it may not be all bad. It would be unrealistic to expect allocative perfection given the dire straits we are in.
|Office of the President and Cabinet||14.26|
|Parliament of Zimbabwe||7.186|
|Public Service, Labour and Social Welfare||6.929|
|Defence and War Veterans||23.754|
|Transport and Infrastructure||30.064|
|Primary and Secondary Education||55.221|
|Higher and Tertiary Education||14.368|
|Youth and Sport||3.447|
|Zimbabwe Anti Corruption Commission||0.317|
The most important part of the budget is always going to be how they expect to fund the planned expenditures. Revenue measures, therefore, take centre stage to me and this edition they have not disappointed.
Tollgate fees in USD
Motorists will be given the option to pay tailgate fees in US dollars going forward. According to the document, this is not mandatory however we shall have to see how it breaks down on the ground. The following toll fees will apply
Import ban on cars older than 10 years
Cars older than 10 years will be removed from the open general import licence list. To put this move in context, car imports were up in 2020 compared to 2019 despite the government mandating that duty be paid in foreign currency. Just like they did with 2% tax the government through our minister has followed the activity and wants more of that action. The minister proposes Zimbabwe has local manufacturing capacity. I have seen people celebrate this move as a boost to local manufacturing, this is is misguided as affordability remains the biggest stumbling block.
Tax-free thresholds increased
The Pay As You Earn tax-free threshold was doubled from $5000 to $15000. Small relief to civil servants who recently received a long-overdue salary hike. The Intermediated Money Transfer Tax (2%) threshold was also bumped up. Tax will only apply on transactions above $500 now. Previously it was $300. The tax-free bonus threshold was increased 5 fold from $5000 to $25000. In all fairness to the minister and team, they have given.
For the record presumptive taxes have been a feature of Zimbabwe’s tax system for many years. What has changed is the approach to them. It is expected that landlords will collect and remit the presumptive tax on behalf of the tenants and failure to do so will land the landlord in trouble. It seems like the Professor has decided to get serious on this arrangement. Presumptive taxes are not necessary where a business owner has a valid tax clearance. The taxes range from $2500 for hairdressers, $15000 for Cottage industry, restaurants and bottle stores to $250 000 for law firms and $1 000 000 for medical practices. All figures are per month. Again the good minister has gone for the activity. The message is clear, formalise and submit taxes or pay the presumptive tax. Could the stick that the minister has chosen be the push needed?
The minister also announced a Cannabis levy to be paid by those in the cannabis industry. The levy ranges from 10 to 20% and is applied as follows. Exports of processed cannabis products will attract a levy of 10%. Exports of extracts and cured cannabis will attract 15% while raw cannabis exports will attract a levy of 20%
To sum up this budget in one word I would say optimistic. Unfortunately, the source of the minister’s optimism is questionable at best. Credit to Professor Ncube he has soldiered on even when his source of optimism isn’t clear. It is always in implementation and execution that we see what is what but perhaps we shouldn’t expect much from this budget plan.