Treasury plans to adjust tax brackets to write off workers
Prosper Ndlovu–Bulawayo office
TREASURY is set to adjust tax brackets for workers to reverse income erosion and increase consumer purchasing power in the face of price escalation induced by speculative activity of the parallel market.
The intervention would bring enormous relief to consumers at a time when companies continue to raise prices for basic goods and services, which they index to distorted parallel market exchange rates.
This is despite the fact that many producers benefit from the Reserve Bank of Zimbabwe’s foreign exchange auction platform, which has paid nearly $ 2 billion to 4,000 companies since its launch last June.
Financial economists have stressed the need to narrow the gap between the official exchange rate, which has remained stable at US $ 1: $ 86 against wild parallel market rates to around US $ 1: 140 and above.
To remedy the situation, the Minister of Finance and Economic Development, Professor Mthuli Ncube, said the government was working closely with the private sector to tackle the dynamics of supply and demand to restore the purchasing power of consumers.
âFirst and foremost, what drove the price hike was parallel market activity, to which most retailers will then tie their prices.
âYet we have a well-functioning auction system that can provide a lot of currency overall. Companies have already accessed over US $ 1 billion for raw materials, equipment, etc. “Professor Ncube told our Bulawayo office in a recent interview.
âWe are taking steps to ensure that the gap between the parallel market and the auction rate is contained. With prices that have already gone up, one of the things we usually do at budget time is to consider adjusting the tax brackets.
âSo we are already looking at this to see how to better amortize more our consumers and our hard-working citizens by using the tax system in terms of salary brackets. “
Momentum towards this is expected to build as the country launches the consultation process slated for next month leading up to the development of the next fiscal policy to guide the economy through 2022.
For civil servants, in particular, the minister said arrangements are in place to ensure that all public sector workers receive their usual bonus in November and December of this year.
âWe hope that by doing this as a central government, the private sector also complements this to ensure that their own employees are also taken care of in the same way.
âYou can see that every year we try to protect our employees and the private sector tries to do that as well and we will get there in a short period of time. The future is very bright.
The Parliamentary Budget Office (PBO) noted in its recent Medium-Term Monetary and Fiscal Policy Review Report the urgent need for the Treasury to expand the tax exemption threshold and revise upward the minimum amount of tax on taxable electronic transactions in order to stimulate disposable income and aggregate demand.
He noted that even though the tax exemption threshold remained at $ 10,000, this led to a shift in age groups, which held back disposable income and, consequently, aggregate demand.
âThe PBO calls on Parliament to amend the 2021 finance law in order to raise the tax brackets. The PBO also urges the government to revise upward the minimum taxable amount for the two percent Intermediate money transfer tax starting at the current $ 500, which is still too low like most products the poor buy at one point in time would cost much more than $ 500.
While admitting its negative impact on the economy, Prof Ncube said research into parallel market exchange rates is “rather overestimated”, adding that “it is unfortunate that it then leads to price changes and inflation trends in the economy “.
He assured the market that the system the government has put in place for price discovery through the auction system is working. To complement this, Professor Ncube said that a window has been created for companies to also access foreign currencies from their banks, especially those that are export-oriented and under specified bilateral agreements.
In addition, the Central Bank has implemented a system that allows people wishing to exchange and purchase smaller amounts to do so on a weekly basis through exchange offices.
“This has enabled ordinary people to access up to US $ 50 per week and is part of the effort to formalize the foreign exchange market, which is essential to generate lasting stability,” said Professor Ncube.
Regarding the delays in disbursing funds allocated to the forex auction platform, he said the government had already released $ 70 million to clear some of the backlog, which had swelled to around $ 200 million. , with more resources mobilized to support the platform.
Professor Ncube, however, stressed the need to maintain fiscal discipline, saying the government is ensuring it lives within its means.
âWe always make sure that as a government we have fiscal discipline and that there is good targeting of monetary policy. Fundamentals should also remain stable to support a stable exchange rate and we are doing it, âhe said.
âOur fundamentals are in place and strong, they are actually better than other countries. We do not have a budget deficit but a current account surplus. We are doing everything to ensure that there is stability.
With a revival of the agriculture, manufacturing, ICT, health and mining sectors, Zimbabwe’s economy is poised to record up to 7.8% growth in gross domestic product ( GDP) this year, having already demonstrated strong resilience to consecutive shocks over the past three years, including the latest Covid-19 pandemic.