As is the tradition in the last week of November the Minister of finance and Economic Development, Professor Mthuli Ncube presented the National budget for the coming year 2022. The budget though containing many highlights was very much an iteration of versions gone by. No drastic changes in government approach save for a few areas. This was expected as the government forges forward with the National Development Strategy 1. Let’s look at some of the highlights from the budget statement with a view to understanding their rationale and impact.
After the usual preamble about the goals of the budget, the Minister went into some details with statistics on revenue sources and expenditure and projections for GDP growth and inflation.
VAT remains the top tax revenue source at 23.6% with Corporate tax 18.8% and Personal Income tax at 16.6% helping to make up 59% of government revenue. Also notable was excise duty weighing in with 11.8%.
As for how the government has spent that money there are quite a few highlights. The compensation of employees has thus far gobbled up only 31.18% of the government’s purse. We have become accustomed to much higher figures. The major beneficiary of this reduction in consumption has been Capital expenditure which took up 35.41% of the spending. It was only a year ago we lamented the woefully low capital expenditure level at around 18%. Assuming the investment is in productive capacity and enabling infrastructure the move is definitely welcome.
|Compensation of Employees||111609.6||31.18%|
|Use of Goods and Services||47632.7||13.31%|
|Acquisition of Non-Financial Assets (Capital Expenditure)||126775.2||35.41%|
The minister stuck to optimistic GDP growth projections in spite of some troubling signs we have seen in the economy. The statement put forward that real GDP growth is expected to be 7.8% in 2021 and to slow down to 5.5% in 2022. not entirely impossible coming off two consecutive years of contraction but still very optimistic.
Initially optimistic targets for inflation for 2021 have had to be revised. Once aiming for year-on-year inflation to fall between 25 and 35 by year-end now the target is between 52 and 58%. ZimStat early yesterday released inflation data to reveal year-on-year inflation was at 58.4%, yes above the target range. Month-on-month inflation at 5.8% shows that unless we have deflation in December we have definitely missed the target.
The expenditure plan for 2022 is detailed in Annex1 and shows a major focus on Agriculture (12.8%), Health (12.2%) and Primary education (12.8%). Transport and Infrastructure development will receive 6.3% of the budget while Interest on domestic debt is expected to take up 1.5% of the budget.
Let’s take a quick look at some other noteworthy matters in the budget statement
A 5% levy shall be introduced on all imported products and this will go towards a dairy revitalisation fund that will invest in the national herd.
Smokers hit hard
Excise duty on cigarettes will go up from 20% + US$5.00/1000 cigarettes to 25% +US$5.00/1000.
Energy drinks also take a hit
Flat rate excise duty on energy drinks at US$0.05/litre, or the local currency equivalent.
Non Communicable diseases Fund
The increments in excise duty will be channelled towards a Non-Cummicable diseases Fund that will support the needs of those living with Cancer, Diabetes, hypertension and other non-communicable diseases. This is a commendable move.
Road Accident Fund
Funds will be directed to the creation of a road accident fund that will assist victims of accidents. This will be funded by the redirection of 20% of the Consolidated Revenue Fund.
Tax-Free Thresholds reviewed upwards
Citizens will get to keep more of their money as the tax-free threshold was increased from ZWL10 000 to ZWL25000. The maximum tax bracket now stands at ZWL500 000, above which a marginal tax rate of 40% will apply, with effect from 1 January 2022. For those earning in US Dollars, the threshold is increased from US$70 to US$100 with effect from 1 January 2022. Other foreign currency tax bands remain unchanged.
Tax-free thresholds on bonuses were also adjusted from ZWL25 000 to ZWL100 000 and the foreign currency tax-free bonus threshold from US$320 to US$700, with effect from 1 November 2021. Changes were also made to the taxation of retrenchment packages from the greater of ZWL50 000 or 1/3 of the retrenchment package, whichever is higher, up to a maximum of ZWL240 000, to the greater of ZWL400 000 or 1/3 of the retrenchment package, whichever is greater, up to a maximum of ZWL2 million, for income earned in local currency.
Disability tax credits introduced
Employees will be awarded a tax credit of US$50 or local currency equivalent per additional employee recruited per month for corporates that employ physically challenged persons. The credit will, however, be limited to a maximum of US$2 250 per year of assessment.
The minister continues the push for fiscalised registers in businesses allowing only fiscalised tax invoices will be used for VAT input tax claims. Also, no Tax Clearance Certificate will be issued to registered operators whose devices are not interfaced with the ZIMRA server.
New cellphone levy
A levy will be introduced through mobile operators on the registration of new cellphones to their network at US$50 per handset. Where it can be proven that duty has been paid ZIMRA will provide a refund of the levy.
Excise duty adjustment
Excise duty will be levied in the currency of trade used by the business in question.
Vehicles and bonded warehouses in focus again
Vehicles will no longer be allowed to be imported into bonded warehouses with those already in bonded warehouses given 6 months from 1 December 2021 to clear out. The maximum stay for those goods that will be allowed into bonded warehouses will be fixed to 2 years.
VAT exemptions on domestic tourism
The VAT exemption on the supply of accommodation and services to domestic tourists will be extended by a further 12 months effective from 1 August 2021.
Increased Capital Gains withholding tax on the sale of shares
Finally, the Capital Gains withholding tax on shares has been increased from 1% to 1.5%. Where the shares have been held for less than 6 months the tax goes up to 2%.
Very much an iteration on the previous one as the National Development Strategy 1 document continues to guide the direction.