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Zimbabwe’s ZiG Poised for Strength Amid Corporate Tax Payment Surge

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Harare, Zimbabwe – The Zimbabwe Gold (ZiG) currency is set to strengthen against major currencies on the official market, driven by a surge in demand as companies prepare to meet their quarterly corporate income tax obligations.

In Zimbabwe, companies are required to pay taxes quarterly, with deadlines on March 25, June 25, September 25, and December 20. A recent government directive mandates that companies must pay half of their tax obligations in ZiG and the remainder in U.S. dollars.

The Reserve Bank of Zimbabwe (RBZ) reports that the Zimbabwe Revenue Authority collects approximately US$300 million in corporate income tax each quarter. This creates a projected demand for ZiG equivalent to US$150 million, or about ZiG2 billion.

Currently, only around US$80 million (approximately ZiG1 billion) worth of ZiG is in circulation in the official market following the currency conversion in April, when ZiG replaced the Zimbabwe dollar. This discrepancy between the available amount of ZiG and the required amount for tax payments is expected to significantly increase demand for the local currency, potentially leading to its appreciation on the official market.

Reports indicate that some companies, especially those transacting predominantly in U.S. dollars, have already begun seeking ZiG to meet their tax obligations by June 25.

RBZ Governor Dr. John Mushayavanhu assured that there is sufficient reserve money to support all economic transactions during this period. “Businesses are required to pay 25 percent of their annual corporate income tax by June 25, 2024, with at least 50 percent of the tax due in ZiG,” he said.

He noted that while the reserve money supports all economic activities, it would be inadequate if all taxes were paid simultaneously on the due date. However, companies typically start paying two weeks in advance, and this money is re-injected into the system through government expenditures, such as paying civil servants’ salaries, thus alleviating pressure on ZiG demand.

Dr. Mushayavanhu emphasized that the RBZ will ensure smooth national payments and settlements. He advised companies to start accumulating ZiG early to avoid acquiring it at a higher exchange rate later. He also assured that while ZiG is expected to appreciate, the RBZ will deploy strategies to maintain the currency within desired stability bands to avoid competitiveness and deflationary effects from an excessively strong exchange rate.

“The requirement to pay 50 percent of June QPDs in ZiG is expected to further boost domestic currency demand and consolidate the current exchange rate stability,” he added. “By and large, the ZiG

dollar exchange rate is expected to strengthen around the QPD period and in the near term. However, the bank will intervene as necessary to maintain stability, as both higher inflation and deflation are detrimental to macroeconomic stability and growth.”

The current official exchange rate stands at US$1.48. Experts note that increased demand for a currency relative to its supply leads to its appreciation, a basic principle of supply and demand.

Economist Dr. Prosper Chitambara commented, “This creates excess demand for ZiG, which is crucial for its sustainability. Strengthening ZiG is important for the economy’s micro-economic stability.”

In April, ZiG replaced the Zimbabwe dollar, whose value had been declining since the beginning of the year. ZiG is backed by a basket of precious minerals, mainly gold, as well as foreign currency reserves held by the central bank.