The Zimbabwean business news scene has been nothing short of entertaining in the last 4 weeks. Particularly in capital market-related matters. After the president announced measures to restore confidence in the economy and currency markets were sent into a tailspin as investors grappled with the announcement of a 40% capital gains tax up from 2%. Thankfully the increase was only 4% as clarified by SI 96 A. A short while later SI 103A was announced and it tightened the rules and profit margins for stockbrokers. Just when we thought the dust was settled SI 103A was suspended citing errors in the document. A few days later we got SI 104 A which removed the threat to stockbroker profit margins. How did we end up here?

SI 103A

We covered SI 103A here and noted that rules about stock trading accounts managed by brokers had been tightened. We also noted that the document redistributed the costs associated with buying and selling shares such that broker’s commissions were reduced from 0.92% to 0.7650% while the SECZim levy paid by investors per transaction increased from 0.16% to 0.2%. The ZSE Levy was also increased from 0.1% to 0.25% The reduction in the broker’s commission would also reduce the Value Added Tax on the broker’s commission from 0.1134% (14.5% of 0.092%) to 0.1109% (14.5% of 0.7650%). The change in the Capital Gains (Withholding) Tax on the disposal of marketable securities was also included in the ZSE fee schedule in SI 103A though it had already been brought into law by SI96. The net result of all these changes was investors paying 1,7009% when buying, previously 1.6884%. While paying 5.4259% when selling shares held for less than 270 days and  2.9259% on disposal of shares held longer than 270 days.   If we exclude the change in CGT investors were paying lower fees at 1.4259% versus 1.4384%.

Buying

Selling

Old

New

Old

New

Broker’s Commission

0.9200%

0.7650%

0.9200%

0.7650%

VAT (14.5% of brokerage)

0.1334%

0.1109%

0.1334%

0.1109%

CSD Levy

0.1000%

0.1000%

0.1000%

0.1000%

Stamp Duty

0.2500%

0.2500%

0.0000%

0.0000%

ZSE Levy

0.1000%

0.2500%

0.1000%

0.2500%

SECZ Levy

0.1600%

0.2000%

0.1600%

0.2000%

Investor Protection Levy

0.0250%

0.0250%

0.0250%

0.0000%

Capital Gains Tax (withholding)

0.0000%

0.0000%

2.0000%

4.0000%

Total

1.6884%

1.7009%

3.4384%

5.4259%

Old

New

Grand Total

5.1268%

7.1268%

If sold after 270 days

5.1268%

SI 103A suspended

On the 31st of May, SI 103A was suspended citing errors in the document that had been noticed by the Ministry of Finance which moved to suspend its implementation. And indeed there was an error in the document which referred to the 4% being levied as CGT on the sale of marketable securities as being in line with the highest marginal PAYE tax band, which is 40%. So all seemed well to us as such errors should indeed be corrected lest they create a loophole that can be abused or leave the statutory instrument technically ineffective.

SI 104A

S.I. 104A of 2022 Securities (Registration, Licensing and Corporate Governance) was introduced to correct the errors in SI 103A and this is where things got a little awkward. We expected to see corrections to the PAYE reference but instead, we were greeted by the ZSE fee and charges table which had new charges, levies and fees different to the ones in SI 103A. They just happened to be the old ones from before SI 103A. So the ministry of finance had backtracked on the moves to shift the fee income from brokers to the SECZim and ZSE Levies.

I think it is a bit ironic if not poetic that all this back and forth stems from a speech titled “measures to restore confidence”. Laws introduced since then to implement some of these measures have already been chopped and changed. The harsh reality is that these measures have caused more confusion than restoring any confidence. To add insult to injury the intended targets of these measures the inflation rate and parallel market exchange rate have both been on the rampage since the measures were announced.