Zimbabwe businesses defy minister on new tax regime

Prof Mthuli Ncube

Some businesses are defying Treasury’s directive to review downwards the 15% Value Added Tax (VAT) to 14,5% levied on certain goods to stimulate aggregate demand.

Finance minister Mthuli Ncube ushered in the new tax regime when he announced the 2020 National Budget, saying the revised tax brackets were meant to spur demand, amid quickening inflation. Inflation ended the year at 521%.

A survey done by the Standardbusiness showed that a number of retailing outlets are still levying 15% on a range of their products.

The VAT was reduced from 15% to 14,5% with effect from January this year.

The deduction was supposed to mark a tumble in prices of retailed goods and give respite on price hikes to consumers. On the contrary, prices have been spiralling upward.

Former Finance minister Tendai Biti said there was no excuse for business to continue levying the old tax threshold as it was scrapped through the passing of the finance act by Parliament.

“The finance act was passed by Parliament and it brought into effect all the proposals made in Parliament. There is no excuse for businesses to continue levying the old tax threshold. But the bottom line is it’s a waste of time. It won’t bring relief to consumers. The real issue was supposed to remove the 2% tax and fuel levy,” Biti said.

Insiders have also raised alarm over the fiscal gadgets saying  most businesses were using gadgets which were outdated and could not  reconfigure to the new VAT threshold.

Consumer Council of Zimbabwe chairperson Philip Bvumbe said there was need to educate consumers about the tax changes so that they may not be prejudiced.

“There is need for education and empowerment for retailers and consumers so that they claim compensation. We need to speak more about it,” he said.

According to Treasury, VAT was the biggest tax head contributing 25% of total revenue as of June 2019.Trailing behind it was excise duty at 20%.

According to Treasury,   the reduction of VAT was done in order to stimulate aggregate demand.

As announced in the budget, statement   the move sought to ensure affordability of basic goods and services, after noticing aggregate demand on standard rated goods had, shrunk, mainly due to low disposable incomes.

Zimbabwe National Chamber of Commerce chief executive officer Christopher Mugaga said the minimal drop in VAT would not be felt by consumers.

“If you were to ask me, it all boils down to a lethargic approach to implementation of government policies. The marginal decline in VAT won’t be a significant boast to consumer demand which has hit rock-bottom thus threatening the prospects of a positive GDP in 2020. There has not been a follow-up on the extent to which the SI is being brought to life notably by the private sector.”

In a nation where the rate of tax evasion is astronomically high like Zimbabwe, the incentive to revise tax levels downwards will not necessarily translate into benefits for consumers, however, the same should not apply on VAT since it is very difficult both to evade and avoid,” he said.

VAT is an indirect tax on consumption, charged on the supply of taxable goods and services. It is levied on transactions rather than directly on income or profit, and is also levied on the importation of goods and services.

This tax was introduced in 2004 to replace the former sales tax regime under Chapter 23:12 Value Added Tax (General) Regulations (Statutory Instrument 273 of 2003).

Generally, all goods and services are standard-rated unless specifically exempted, zero-rated or subject to VAT at a special rate.

Basics such as sugar are VAT-exempted in Zimbabwe.

SI 26 A of 2017 removed some goods from zero rating and standard rating and placed them under exempt supplies.

Examples of supplies include financial services, provision of electricity for domestic use, provision of piped water for domestic use and rates charged by local authorities.

“We are hearing the issue now and we will make necessary investigations with a view to correct the anomaly,” Confederation of Zimbabwe Retailers president Denford Mutashu said.

Questions sent to the Zimbabwe Revenue Authority were not answered at the time of going to print.