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Budget Presents Tough Times Ahead

The 2021 National Budget did not proffer adequate interventions to bring relief to local businesses and inspire growth into the economy; instead it focused on replenishing dwindling tax revenue streams to meet government expenditure.

It was bound to be a delicate balancing act to which the Finance Minister, Professor Mthuli Ncube rather ended up aggravating the corona virus blow which micro-businesses are yet to recover from.

A US$30 monthly presumptive tax per unit on micro-businesses operating from partitioned units will definitely come as a double blow.

“A number of enterprises operate from designated business premises where the landlords are either Local Authorities or private property owners such as the Gulf Complex and Kwame Nkrumah Mall, among others,”

“Their place of business is, thus, comprised of partitioned units in commercial buildings. The fixed nature of business, thus, presents an opportunity for the tax administration to improve tax collections from presumptive taxes. I, therefore, propose to introduce a presumptive tax of an equivalent of US$30 per unit per month,” said Ncube.

An increase in presumptive taxes will affect transport operators, hairdressers, informal traders, cross-border traders, restaurant operators and bottle stores and cottage industries among others.

From a fiscal point of view, the Finance minister had limited options to source revenue from given the depressed state of the economy but on the flipside, the SMEs segment which comprises of minute business operations will struggle to cope as it was already struggling to meet rental and other operational costs prior to the announcement.

Moreover, for the better part of the year, these small businesses were shut down as they were deemed non-essential service providers.

There are fears that the latest development will force micro-businesses into devising ways of evading this fixed tax thereby pushing more business into the informal market.

Market watchers were already wary of the Intermediated Money Transfer Tax (IMTT) which they argued that it had become a major cost driver for businesses and wanted it scrapped.

In contrast, the Minister marginally increased the tax-free threshold from the current ZWL$300 to ZWL$500 and the maximum tax payable per transaction by corporates from the current ZWL$25 000 to ZWL$800 000 on transactions with values exceeding ZWL$40 million while transactions in foreign currency maintained the tax-free threshold of US$5.

“Due to stability in exchange rate we are likely to see revenue in companies stagnating but they are going to start falling soon because of the IMTT and the high bank charges regime that is currently prevailing in the country. The economy is going to enter stagflation or even recession,” said SMEs Association, executive officer Farai Mutambanengwe.

“We are going to see increasing dollarization and informalisation again because of high taxation,” he added.

The upward review of the Petroleum Importers’ Levy to USD$0.05 a litre on both diesel and petrol from ZW$1.147 and ZW$3.441 per litre of diesel and petrol, respectively, is likely to push price of fuel up, spiking inflation.

Most noticeable in this budget, is the penchant for taxing in American Dollars that is likely to cause problems going forward.

Analysts say authorities are signaling conflicting signs when on one end they are taxing locals in foreign currency yet they are pushing for the establishment of the local currency on the other end.

As a result, disposable incomes, which are predominantly in local currency are likely to suffer erosion as businesses will naturally raise prices to meet US$ tax obligations.

 

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