Under-fire Finance minister Mthuli Ncube was this week forced to confront the damage his 2024 budget would wrought on the Zimbabwean economy, with the Confederation of Zimbabwe Industries (CZI) estimating that its measures could trigger the collapse of thousands of companies and put nearly 40 000 jobs at risk.
The ZW$54 trillion budget — the first to trigger palpable outrage in about 20 years — introduced tough demands to companies, the informal sector and citizens, including a wealth tax and sugar levy.
The Treasury chief disclosed this week that following weeks of backlash, he was forced to ask CZI to undertake a study on the effects of his budget on the economy.
CZI, which represents the biggest companies in the country, produced a 12-page paper warning of carnage in the economy.
“Manufacturers of alcoholic beverages currently only sell to traders that possess a valid liquor license.
“Over 60% of the lager and sorghum beer is sold through bottle stores, night clubs, and general dealers that do not meet the threshold for VAT (value added tax) registration of turnover of US$25 000 per annum,” CZI said.
“The proposed change will impact on 15 000 traders and have serious implications on their welfare and their dependents.
“Manufacturers of soft drinks and bread sell mainly through general dealers, supermarkets and quick service restaurants.
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“A significant proportion of the general dealers, bottle stores, tuck shops are not registered for VAT because they do not meet the threshold.
“The informal traders account for about 5% of soft drink sales.
“The requirement for VAT registration will affect over 20 000 traders, which also has serious implications on welfare,” it added.
“By preventing manufacturers from selling to agents without tax clearance certificates, also implies that manufacturers cannot have shops that sell directly to customers, for example factory shops that would sell directly to customers have now been outlawed.
“This will also have some negative impact on affordability as it means that margins need to be added through intermediaries.
“There is no capacity for the formal channels such as the modern supermarkets and wholesalers to fully service the market demand, hence there is always room for informal sector,” added the report, which is titled CZI 2024 National Budget Response Paper.
CZI warned that shutting out manufacturers from selling goods directly to informal traders would trigger an explosion of illicit imports, which have already been blamed for swamping domestic markets with cheap goods.
CZI said with Zimbabwe’s borders struggling to contain smugglers, the cash strapped government would continue to lose revenue.
“Given that CZI still expects exchange rate distortions and arbitrage opportunities to continue into 2024, the measures simply imply that US dollar sales through formal retailers will continue to be higher than imported products retailed through the informal sector,” CZI warned.
“This means that manufacturers of products that compete with imports will have limited opportunities to have USD sales.
“This also reduces the tax collections in USD.”
It argued that a sustainable taxation system was one where taxes are easy to collect, ‘hard to corrupt’ and ‘should not enrich a new class of entrepreneur.’
“Valuations of property will become the next gold mine – they will be the next commodity,” the CZI said, referring to steeper demand for valuation of properties as government prepares to start taxing properties through the so-called wealth tax.
“(A sustainable taxation system) should be comparable with the region. VAT is already a great tax and avoids the pitfalls of
sales tax.
“In other words, we are already taxing the informal sector which has a very small value add.
“We should promote the growth of the formal sector where more value is,” CZI noted.
“The total expenditure for 2024 is expected to be about ZW$58,2 trillion, to be financed from an expected revenue of about ZW$53,9 trillion, with a targeted budget deficit of ZW$4,3 trillion (1,5% of GDP (gross domestic product).
“The budget deficit is less than 3% of GDP, which is in line with Sadc targets.
“However, the concern is largely that despite the economy being 80% dollarised, the 2024 National Budget is in Zimdollars rather than the greenback.
“Thus, there are huge possibilities that the expected revenue and expenditure mix are not realistic, given that no one can adequately anticipate currency volatilities to be witnessed in 2024.”
Commenting on the sugar levy, the CZI said: “Traders will resort to import of beverages from regional countries where the products are cheaper.
“This will have implications in terms of employment in the beverage sector, which employees about 8 000 people and the whole sugar value chain which employees more than 30 000 people”.
On Monday this week, after terse meetings between industry and government, Ncube was forced to make changes to his measures on trading, VAT, and basic commodities.
Retailers now can buy from manufacturersas long as they are tax compliant while manufacturers can sell to informal traders, and a 5% withholding tax will apply.
Ncube also lowered the sugar tax on soft drinks.
“The (CZI) committee undertook an impact analysis on the implementation of some of the measures introduced through the 2024 budget, in particular with regards to tax compliance on route to the market, mitigation of consequences of the sugar on health through a special surtax, and a few tariff lines that were omitted on exemption from Value Added Tax, in order to cover the whole value chain that includes cotton and soya seeds to cooking oil,” Ncube said.
“Findings of the committee have been presented; hence, Treasury advises…retailers can purchase from manufacturers as long as they have obtained a valid tax clearance certificate, and are VAT registered.
“Manufacturers are permitted to sell to institutions such as hotels, schools and other corporates, provided such clients are registered for VAT and possess a valid tax clearance certificate.”
