The widening of tax brackets by Government is expected to boost spending by employees since they will have more money, and correspondingly result in businesses pushing more volumes, Employers Confederation of Zimbabwe (Emcoz) president Dr Israel Murefu has said.
He said this in emailed responses to The Herald Finance & Business recently.
In the 2021 National Budget, Finance and Economic Development Minister Professor Mthuli Ncube, indicated Government’s commitment to improving workers’ disposable income as part of the broader agenda to increase aggregate demand and savings.
He said the recent salary and wage adjustments for public and some private sector employees necessitated a corresponding review in the personal income tax framework.
Prof Ncube proposed to review the tax-free threshold from $5 000 per month to $10 000 per month effective January next year.
“I, further, propose to adjust the tax bands to begin at $10 001 and end at $250 000 per month, above which the highest marginal tax rate of 40 percent will apply.
“The . . . measures are effective from 1 January 2021,” he said.
Further, Prof Ncube proposed to review upwards the bonus tax-free threshold from $5 000 to $25 000, with effect from 1 November 2020.
Said Dr Murefu: “The widening of tax bands augurs well for both employees and business because it increases spending power in the hands of workers and businesses benefit from increased consumption of their products and services, which grows with increased spending.
“However, we still need to do more around sustainability of the exchange rate stability, confidence in local currency and lowering inflation which is still in hyper levels.”
But economists aver that Zimbabwe is not in hyperinflation since prices are not rising by over 50 percent per month.
Prices had risen five months ago, but they have generally since the introduction of the foreign currency auction towards the end of June.
Dr Murefu joined other experts who praised the entire 2021 National Budget saying it was “both ambitious and progressive”, although the economic growth projected figure of 7,4 percent “may be difficult to achieve” because of the Covid-19-related disruptions and other legacy issues such as drought and the Cyclone Idai after effects.
He added that the focus on upgrading and modernisation of infrastructure bodes well for business as it reduces operational and access to markets costs.
“Water is also critical for business in the same manner as power and fuel,” said Dr Murefu.
“Otherwise the Minister (of Finance) tried his best to juggle around national priorities and objectives in a situation where external budgetary support is almost non-existent.
“I think if we all support efforts to achieve what is in the plan, we could get to somewhere in 2021.”