Brace up for new taxes, aggressive tax collection

Introduction

On Thursday 28th November, 2024 the Minister of Finance, Economic Development and Investment Promotion presented the 2025 budget statement in the National Assembly.  The budget has a number of new tax proposals.  Most will increase taxes, but there are tax reductions in some sectors to spur economic activity and promote a green environment.  Above all the statement lays out an aggressive tax collection stance in the new year as the tax base shrinks.  This Watch looks at the tax proposals.

Tax Reductions

In a move aimed at reducing emissions into the atmosphere the Government will reduce customs duty on electrical vehicles imported into the country.  It will remove value added tax (VAT) on liquified petroleum gas (LPG) and reduce the sugar tax to boost the drinks manufacturing sector.  The reduced taxes are:

• Customs duty on electric vehicles to b be reduced from 40% to 25%
• Special surtax on cordials to be reduced from USD 0.001 per gram to USD 0.0005 per gram of sugar content in concentrated beverages
• VAT on Liquefied Petroleum Gas (LPG) to be removed.

Increased Taxes

To improve its revenues the Treasury suggested the following measures;

• Capital gains tax on marketable securities to be revised from a temporary 2% withholding tax to a final 1% tax from the 1st January 2025.
• Excise duty on alcoholic beverages to be increased from USD 0.25 per litre to USD 0.30 per litre, effective from the 1st January, 2025.
• Royalties on quarry stones will be a flat 0.5% of their sales value.

New Taxes Introduced

In an endeavour to increase the tax base, Treasury proposed the following new taxes:

• Fast Foods Tax: A 0.5% tax on the sales value of fast food items like pizzas, burgers, and French fries, effective from the 1st January, 2025.
• Betting Tax: A 10% withholding tax on gross winnings of sports betting punters, effective from the 1st January, 2025.
• Plastic Carrier Bag Tax: A 20% tax on the sale value of plastic carrier bags, to promote biodegradable alternatives.
• Rental Income Tax: Properties converted from residential to business use will attract a 25% tax on their rental income.

Other Tax Adjustments

• Corporate income tax on building societies:  Receipts from non-mortgage activities by building societies will now be taxed.
• Degree of export orientation for Special Economic Zones (SEZs) will be reduced from 100% to 80%, while tax holidays for SEZs will be replaced with a 15% corporate income tax rate.

Aggressive Tax Collection

The Treasury has been disturbed by low and late revenue collection in an environment where inflation is high, and has decided to reduce the days within which companies that collect VAT have to remit it to ZIMRA.  To improve the situation, the Minister proposes the following:

1. Mandatory Tax Registration for Emerging Sectors:Certain business categories like car dealers and hardware operators must register for taxes, failing which specific quarterly corporate tax payments are mandated.
2. Changes to VAT Payment Deadlines:VAT remittance deadlines to be reduced from 25 days to 15 days after collection.
3. Reduced Interest Rate for Local Currency Revenue Remittances:Adjusted from 200% to the Bank Policy Rate plus 5%.

Conclusion

It is clear from the growing budget deficit that the Treasury has been struggling to raise revenue. To remedy this, the Minister proposes a cocktail of interventions.  However, the Finance Bill still has to pass the National Assembly, and once it is passed it will be interesting to see how far the new measures are complied with in our ailing economy.

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