Source: What Finance Bill No 3 entails – NewsDay Zimbabwe December 11, 2019
ONE of the two areas the 2020 national budget focuses on is jobs, specifically, unemployment and underemployment among mainly the youth.
BY TATIRA ZWINOIRA
In his budget presentation last month, Finance minister Mthuli Ncube said failure to address t youth unemployment would undermine initiatives to improve demand-induced economic growth.
“The thrust of the tax measures I am proposing, thus, focuses on enhancing job creation, productivity and economic growth, through targeted support to industry. Furthermore, the measures seek to enhance revenue collection through advancing the ongoing tax administrative reforms aimed at plugging revenue leakages,” Ncube said.
Last week, the importance of the youth population in employment was highlighted as a critical resource in a report from the Parliamentary Portfolio Committee on Youth, Sport, Arts and Recreation during the budget debate.
“The Constitution of Zimbabwe Amendment (No. 20) Act, 2013 defines youths as people between the ages of 15 to 35 years. This huge cohort of young people with those below the age of 35 constituting 77% of the population and those under 15 making up 41% of the national population.
The youth population (15-35) constitutes about 36% of the national population, which is a significant proportion of Zimbabwe’s population,” reads part of the report.
“When fully utilised, it can contribute towards economic development in the country, hence the need to fully understand this dynamic group of young men and women in order to leverage on its abundant energy and affordable labour force. The youthful population presents an opportunity for Zimbabwe to have an energetic, abundant and affordable labour force, especially now when the country desperately needs to reindustrialise following two decades of de-industrialisation.”
The recent Government Gazette, Finance Bill No.3 of 2019 proposed several changes to income tax that is meant to incentivise job creation and plug revenue leakages through income tax.
Under Clause 3, it states: “Part II of the Finance Act [Chapter 23:04] provides for specific deductions (called “credits”) of an actual amount of tax from the actual tax payable. This clause introduces the “youth employment credit” for taxpayers who employ young persons under certain conditions.”
This would give effect to Treasury’s proposed tax credit of $500 per month per employee for corporates that employ additional employees in a year of assessment with the measure limited to $60 000 per year of assessment.
Under clause 6 of the Finance Bill, with effect from January 1, 2020, the Bill: “proposes (a) to alter the income bands used in the calculation of income tax to begin at $2 000 instead of the current $700 a year and ending at $50 000 above which income tax is charged at 40%.
“(b) to decrease from 25% to 24% the tax on the taxable income of companies, trusts and unincorporated businesses.”
The idea behind this measure is to inspire companies to employ more knowing that it won’t be as costly to hire new staffers.
Clause 8 widens the definition of gross income.
“The clause amends the segment of the definition of “gross incomes” that brings within the scope of gross income which accrues to individuals in the form of so-called “fringe benefits”. In particular, it updates the amounts of income deemed to accrue to such individuals from the use of company vehicles,” read the clause.
This clause basically reduces the deemed cost proportionally, where the period of use of a vehicle is less than the year of assessment.
Another incentive in the Bill is under clause 13 which states: “The 3rd Schedule to the Income Tax Act sets out amounts which are exempt from income tax. Among other amendments this clause clarifies the conditions under which the income and accruals of venture capital companies are exempt from tax.
“It will also increase the maximum amount of an employee’s bonus and retrenchment package that is exempt from tax. Fees received by a non-executive director which non-executive directors’ tax is also exempt from income tax.”
Basically, this clause seeks to encourage investors, both domestic and foreign, to hire without the fear of it being costly.
In the budget, there were several other tax incentives that were mentioned.
These include a review of the tax-free bonus from $1 000 to $5 000, with effect from November 1, 2019 for employees aged 30 years and below at the time of employment.
The tax incentive comes at a time when unemployment remains significantly high both in the formal and informal sectors.
Plugging income tax revenue leakages
As mentioned in the budget, while government is offering tax incentives to stimulate job growth, it also talked about enhancing revenue collection through advancing the ongoing tax administrative reforms aimed at plugging revenue leakages.
For a government that continues to run on fumes which is proposing a near 143% increase in the 2020 national budget to $63,6 billion, it will need to offset the tax incentives which is standard practice internationally.
In this regard, the foreign currency-strapped government, under clause 5 of the Bill, provides the schedule of taxable incomes of locals earning foreign currency wages with the tax threshold set at US$840.
In the proposed Finance Bill, clause 9 proposes to tax certain income deemed to be from within Zimbabwe.
“Section 12A of the Income Tax Act provides for taxation of certain income deemed to be from a source within Zimbabwe, namely, the taxation of radio and television services from outside Zimbabwe to an address in Zimbabwe, or of electronic services by an electronic commerce operator domiciled outside Zimbabwe to a person in Zimbabwe,” reads clause 9.
“The clause will also update the minimum qualifying threshold for the tax to become payable. It further requires the taxpayer to appoint a representative taxpayer within Zimbabwe (failing which the Commissioner may, by written notice, appoint any person as its representative taxpayer).”
One of the significant changes in plugging income tax leakages is in clause 12 of the Bill.
“Section 80 of the Income Tax Act provides that if persons (“payees”) who enter into contracts with the government or statutory bodies have not submitted income tax returns for the most recent year of assessment, the government of the statutory body concerned is obliged to withhold 10% of all payments due to them under the contracts and pay the withheld amounts to the Commissioner-General,” read the clause.
“These amounts are then set off against the income tax due to payees when their tax liability is finally assessed. This clause will exclude from the scope of who is a “payee” certain persons, including in particular any person making any delivery of grain to the Grain Marketing Board established under the Grain Marketing Act, and any small-scale gold miner making any delivery of gold to Fidelity Printers and Refiners (Private) Limited.”
Therefore, government hopes to recoup any potential non-payments from suppliers’ income tax by withholding 10% of payments.
Plugging revenue leakages could save government billions annually at a time it desperately needs the money.