Revenue generation:

✓ Enhancing revenue generation capacity is essential. Stepping up efforts for a more effective domestic resource mobilization is important.
✓ The budget lacks a clear plan on how to improve the tax performance of the government.
✓ Zimbabwe currently has a low tax-to-GDP ratio of 12.6%. According to the World Bank, a 15% threshold is critical for any country that aims to provide basic services to its citizens. Furthermore, to achieve the SDGs, a tax ratio of 30% of GDP is needed (by extension, the country needs the same for achievement of Vision 2030).
✓ The greatest weakness of the budget for me, is its conspicuous lack of revenue generation capacity strengthening measures;
✓ Given the foregoing, improvements in social service delivery and poverty alleviation for the generality of the population is still far from sight.
✓ The proposed revenue enhancement measures through increasing excise duties on tobacco/ cigarettes and the introduction of a 5c/litre duty on energy drinks won’t help!

Tax relief measures
✓ The proposed review of tax on retrenchment packages is plausible;
✓ A tax-free threshold of ZWL25,000 and US$100 for foreign currency earners is not good enough. Taxing a citizen who is at this level of income is burdensome; because the thresholds are way below the poverty datum line which is at around ZWL36 000 as of November.
✓ To add salt to injury, most workers who are currently below this threshold will by around end of January 2022, be within the taxable band due to ongoing inflation-adjusted wage reviews. Sadly, the government will not be able to immediately review the taxable bracket (Policy lags). Therefore, this threshold is too low if the Minister intends to caution workers from a high tax burden.

Social Protection
✓ The majority of the workers in the country are living below the poverty datum line;
✓ If the government cannot put in place robust social safety nets, it would have been better to implement tax reforms to reduce tax burden on the poor (for instance an elimination or reduction of VAT on food; this is basically because the largest share or even all the income of poor households is going towards food consumption (given the regressive nature of VAT);
✓ The budget lacks a clear strategy on how to strengthen social protection.
Structural disparities between official and parallel market exchange rates
✓ The Minister was silent on how to deal with the instability of the Zimbabwean dollar, especially on the parallel market;
✓ The difference between the official exchange rates and the parallel market rates indicates that the official rate is artificially kept low. It is prudent to adopt a freely floating exchange rate or at least a managed-floating regime which is not as strict.

By Collen Jonasi

Categories Economics

Post Author: admin