The Sunday Mail
Finance and Economic Development Minister Professor Mthuli Ncube on Thursday presented a ZWL$63,6 billion 2020 Budget that triggered varying reactions with some quarters describing it as “pro-poor” while others had issues with the way he introduced some incentives for companies.
Dairibord chief executive officer Mr Anthony Mandiwanza believes the decision by Minister Ncube to extend duty suspension on imported milk powder for the year 2020, is a “good gesture”.
For a constrained corporate or consumer, anything that seeks to reduce your tax burden should be seen as a relief as well as an incentive to boost production or increase earnings in the case of a corporates and increase demand or make savings in the case of individuals.
The 2020 National Budget Statement, appropriately titled, “Gearing for Higher Productivity, Growth and Job Creation”, had more of tax cuts than tax increases, signalling the end of austerity and hopefully the beginning of prosperity through increased productivity and job creation.
Mr Mandiwanza’s company, and many others in the dairy sector, have to import approximately half of their milk requirements and given the volatility of the exchange rate the cost of doing so can be debilitating, so getting to bring in milk powder, duty free, is a welcome development.
Duty suspension on milk powder will help “ameliorate” the cost of inputs as any duty would be a cost increase at a time the overall cost of production is “excruciating,” said Mr Mandiwanza in an interview with our sister paper Business Weekly.
“I think that was a good gesture to retain a zero duty on milk powders especially against a backdrop of production constraints in the country, so that is good,” he added.
Minister Ncube’s decision will not only benefit companies operating directly in the dairy sector, but will include others in the value chain, downstream and upstream. It will, in its small way, help employees in the dairy sector secure their jobs and also make the products reasonably affordable to the constrained consumer. Prices in the economy have remained elevated and without the suspension of duty on raw materials for the productive sector, the situation could have been worse.
Other sectors that got similar benefits include those in the motor vehicle industry as the sector got a boost with the minister proposing to remove SKD kits from the specified list of goods liable for duty in foreign currency for a further three years, beginning December 1, 2019. Small-scale manufacturers, the pharmaceutical sector, clothing manufacturers and operators in the tourism sector among others also got incentives.
The incentives speak to the theme of the 2020 National Budget Statement “Gearing for Higher Productivity, Growth and Job Creation.” When the cost of doing business is reduced it means monetary resources are being freed to either re-invest into the business and grow, reduce product pricing, declare a dividend or reward employees with increased salaries.
Analysing the Budget further will also reveal that there were lots of tax cuts. Minister Ncube cut Value Added Tax (VAT) to 14,5 percent from 15 percent, reviewed the tax-free threshold to ZWL$2 000 from ZWL$700 while tax bands were adjusted to begin at ZWL$2 001 and end at ZWL$50 000, above which the highest marginal tax rate of 40 percent will apply, with effect from January 1, 2020. The minister also reviewed the tax-free bonus from WL$1 000 to ZWL$ 5 000, with effect from November 1, 2019.
These tax cuts will, without doubt, provide relief to taxpayers and boost aggregate demand for goods and services. Once demand is there, then businesses will create jobs to meet it.
Minister Ncube also cut the corporate tax rate from 25 percent to 24 percent beginning in 2020. With this tax cut, expectations are that businesses will raise wages and salaries. Businesses can also use the money saved by tax cuts to give bonuses and increase other employee benefits. But with the current tough economic environment, businesses might choose to use the little tax savings to remain afloat. Others that are in a better position might use the tax cuts to reinvest into the business and create jobs.
Something for the retrenched
The ongoing tough economic environment has also meant companies are rationalising their workforce. We have seen with Old Mutual and recently Standard Chartered Bank with the two companies calling for voluntary retrenchments from their employees. There are, however, a few takers and Old Mutual was forced to make an improved retrenchment package after the first offer, made earlier this year, was met with limited uptake.
The response to the voluntary retrenchment scheme was below expectations, said chief executive officer Jonas Mushosho in a memo to employees recently. Mr Mushosho, however, reiterated that it was imperative that the company reduce its costs of doing business due to relentless economic challenges. One of the reasons why a few were willing to take up the offer was the high inflation currently prevailing in the economy which will with no doubt erode the retrenchees’ packages.
Minister Ncube has, however, sought to cushion them proposing to review the non-taxable portion of the retrenchment package from ZWL$10 000 to ZWL$50 000 or one-third of the package, maximum of ZWL$80 000, with effect from January 1, 2020. This will at least leave those retrenched with funds that they can invest or start a business with.
2pc tax stays
Minister Mthuli, however, did not heed business and individual calls to scrap the 2 percent Intermediated Money Transfer Tax, only deciding to review the tax-free thresholds. Business as represented by CZI is on record as saying the 2 percent tax should expire by December 2019.
“We must point out that this tax is not sustainable over any extended period of time as it taxes each stage of the value chain and negatively affects the growth and competitiveness of value chains,” said CZI in October 2018, a call they and individuals have maintained till now.
But Minister Ncube chose to keep it and only reviewed the tax-free threshold from the current ZWL$20 to ZWL$100 and the maximum tax payable per transaction by corporates from the current ZWL$15 000 to ZWL$25 000 on transactions with values exceeding ZWL$1 250 000, with effect from January 1, 2020. The decision to keep the 2 percent tax will thus keep the cost of doing business elevated and the caverage onsumer seriously constrained.
Truworths’ CEO Mr Themba Ndebele highlighted this when he said “what needs to be done in this country is for the consumer to have money.”
“Incomes of people have been impaired by 15,5 times which is the extent of the devaluation. It’s a loss of value from 1:1 to 1:15,5 times,” he said.
Performance updates published by listed entities confirm this. OK Zimbabwe experienced it with sales volumes falling by 23 percent.