Africa Moyo Deputy News Editor
GOVERNMENT has widened the tax-free threshold to $3 500 with effect from August 1, to improve disposable incomes in the face of price increases. This comes as the highest rate on taxable income has been reduced from 45 percent to 40 percent, to free some money which can be channelled towards consumption and savings.
The development is in line with Government’s efforts to cushion citizens in general, and workers in particular, from the surge in prices.
It also implies that civil servants — who were recently awarded a pay increase to $1 023 for the lowest-paid worker — will take huge chunks of their earnings, tax-free.
In a notice published today, the Zimbabwe Revenue Authority (Zimra) says the necessary legislation will be announced soon to support the review of tax-free thresholds.
“The Zimbabwe Revenue Authority (Zimra) hereby notifies its valued clients that the highest tax rate of 45 percent on taxable income earned from employment which was gazetted in the Finance Act (7) No. 2 of 2019 is being corrected to 40 percent,” said Zimra.
“The necessary legislation amending the highest rate from 45 percent to 40 percent will be promulgated in due course and will be with effect from 1 August 2019.”
Zimra advised employers to effect the correct rate of 40 percent.
Employees earning $3 500 and below will not be taxed, while those earning $3 501 to $15 000 will be taxed at a rate of 20 percent. Those earning between $15 001 and $50 000 will be taxed at a rate of 25 percent; a salary of between $50 001 and $100 000 attracts 30 percent tax; salaries of between $100 001 and $150 000 attract 35 percent tax, while salaries of $150 001 and above will be taxed 40 percent.
Finance and Economic Development Minister Professor Mthuli Ncube had previously indicated that the tax-free bracket was going to be increased for those paying income tax and Pay As You Earn (PAYE).
He said the move was designed to give relief to those earning below the Poverty Datum Line because of the increase in inflation.
“We want them to have more money to spend in their pockets,” said Prof Ncube.
This becomes the second upward review of the tax-free threshold this year, after it was earlier adjusted from US$300 to US$350 ( before the removal of the 1:1 exchange rate between the RTGS dollar and the United States dollar).
But the gains made by employees were immediately eroded by inflationary pressures, which mounted after the removal of 1:1 peg.
The Zimbabwe Coalition on Debt and Development (Zimcodd) had suggested that the initial RTGS tax-free threshold should be set by multiplying the US dollar amount by the existing exchange rate.
The review of the tax-free threshold is set to be welcomed by low-income earners as the country’s inflation rose to 175 percent for the month of June, torching concerns of value erosion.
Figures from the Zimbabwe National Statistical Agency (ZimStats) show that Zimbabwe’s annual inflation for June 2019 rose to 175,66 percent from 97,85 percent in May 2019.