Economy rebasing to grow Zimbabwe revenue

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The rebasing of the Zimbabwean economy has highlighted additional opportunities to grow revenue and also pointed to high levels of tax evasion, Finance and Economic Development Minister Mthuli Ncube has said.

Government recently rebased the economy and subsequent changes of gross domestic product (GDP) numbers in line with the new base year indicate that GDP at current prices for 2016 has moved upwards from $16,6 billion to $20,5 billion, while at constant prices it grew by 29,2 percent from $14,2 billion to $18,3 billion.

Gross domestic product (GDP) reflects the size of country’s economy and it is measured in terms of the monetary value of all finished goods and services produced within a country’s borders within a specific time period, usually a year.

“The rebasing exercise also revealed some vital information on our public finances. In essence, there is notable fall in revenue to GDP ratio, reflecting that revenue generating capacity of the Zimbabwean economy is yet to be harnessed and that the current tax system has scope for expansion,” said Minister Ncube in a new state of the economy report.

“In addition, the higher revenue to GDP ratio before rebasing implies that a higher tax burden is being shouldered by a few taxpayers while tax evasion, particularly in the informal economy, remains quite high.”

In a move aimed to boost the national coffers, Government introduced the Intermediated Money Transfer Tax, now commonly known as 2 cents tax, which came into effect in October after it was gazetted as Statutory Instrument 205 of 2018. Minister Ncube said the tax is aimed at expanding Government’s capacity for capital funding and retooling of the manufacturing sector.

In practice, most governments validate GDP calculations by rebasing periodically, in a bid to reflect structural changes in the economy. Analysts say rebasing allows for a more accurate perspective of the economy.

Said local economist James Wadi: “In broad terms, it is important to rebase GDP regularly, to reflect the new measuring techniques, changing consumer patterns and changing economic conditions. Internationally it is recommended that rebasing be done every five (5) years.

“The rebasing of GDP shows a more representative changes in the structure of the economy and may reflect introduction of new products or sectors.

“Over time, some sectors that may not be fully captured may finally be accounted for by the new measuring techniques,” said Wadi.

“Rebasing may influence certain investment decisions. This may influence the classification of the country in the eyes of international creditors – whether it is a heavily indebted country or not. Hence it may also influence the country’s risk profile,” said Wadi.

Minister Ncube has highlighted some of the outcomes of the recent GDP rebasing:
“These surveys reflected significant changes in the number of establishments in specific sectors and the whole economy (5 419 to 38 137).

“And also important is that the surveys captured the GDP contribution by the informal sector, which has grown bigger in Zimbabwe.” – Herald