Chinamasa plays delicate balancing act

via Chinamasa plays delicate balancing act | The Herald 28 November  2014 by Happiness Zengeni and Conrad Mwanawashe

GOVERNMENT yesterday unveiled the 2015 National Budget which not only takes into cognisance the current difficult economic environment, but emphasises the importance of re-engagement of private sector players, domestic and foreign investors, international financial institutions and supportive governments.

The Government has also made the indigenisation law more flexible as foreign deals will now be negotiated at line ministries.

Finance and Economic Development Minister Patrick Chinamasa said the 2015 National Budget took into consideration the need to promote fundamental principles rooted in the promotion of macro-economic stability, credible and predictable policies that promote inclusive growth and a conducive investment climate.

Minister Chinamasa spoke of the need to develop strong linkages between industry, education, research and development as well as a strong human resource base.

Consistent with the growth forecast of 3.2 percent for next year, Minister Chinamasa maintained last year’s budget at $4.1 billion as Government’s fiscal space continues to be constrained.

The tax base has shrunk, with the Zimbabwe Revenue Authority missing its set targets, while employment costs continue to rise.

Of the $4.1 billion, $3.32 billion or 81 percent will be on account of employment costs.

“The small balance of $798 million will be used for operations, debt service and capital development programmes,” said Minister Chinamasa.

Capital expenditure, which is critical to economic recovery, will be allocated $341 million while the balance will be for operations and maintenance.

Minister Chinamasa said fresh capital injection was needed to stimulate economic activity.

To entice companies to grow the export business, Minister Chinamasa introduced incentives.

“We need to produce and export. This we are (currently) not doing. The growth and development of the economy is underpinned by improving production and export of goods and services through value addition and beneficiation among other strategies aligned to cluster priorities under the Zim-Asset economic blueprint,” said Minister Chinamasa.

Companies that export 30 percent to 40 percent of what they produce will be levied 20 percent tax, 17.5 percent tax for companies that produce 41-50 percent of their production and 15 percent for those that export upward of 51 percent of their production.

Exporting companies use foreign agents to pre-sell products in external markets. The agents charge fees which are subject to 15 percent withholding tax.

“In order to assist exporters to secure markets, I propose to exempt foreign agents’ fees from withholding tax. The agents’ fees should, however, not exceed five percent of the value of exports based on the Free on Board prices.”

“The exemption will be subject to confirmation of acquittal of the CD1 Form,” said Minister Chinamasa.

Government also moved to encourage beneficiation and discourage the export of raw diamonds by removing royalties on rough diamonds sold to firms licenced to cut and polish diamonds, with effect from January 1 2015.

Minister Chinamasa believes that the new measure will help the country realise potential revenue and employment opportunities which it has been deprived of since the diamonds were exported in raw form.

In view of the potential to beneficiate platinum, Government introduced an export tax at a rate of 15 percent, with effect from January 1 2015.

The Government expects to raise more revenue through an increase in excise duty for cigarettes to $20 per 1000 sticks from $15 per 1000 sticks.

Excise duty on cigarettes was last reviewed in December 2012 and the current excise duty rate of US$15 per 1 000 sticks does not reflect the social cost associated with consumption of hazardous substances.

In order to encourage smallholder participation in the production of tobacco, Government repealed tobacco levy on sales by growers, with effect from March 2005.

Tobacco production has increased from 58.6 million kg in 2009 to 216 million kg in 2014, which is the second highest yield in the history of tobacco growing. This highlights the success of the land reform programme.

The number of tobacco growers has also significantly increased to over 80 000 in 2014 from about 29,000 in 2009. The growth in tobacco production has increased per capita income for tobacco growers to an average of about $8 000 in 2014, thus creating a base for potential taxpayers.

“I, therefore, propose to re-introduce tobacco levy on tobacco growers at a rate of US$0.015 of each dollar of the selling price, with effect from 1 January 2015. The revenue generated will be ring-fenced to finance reforestation activities,” Minister Chinamasa said.

Minister Chinamasa reviewed the tax free threshold which was last reviewed in 2012 to the current level of US$250 per month.

“In order to raise aggregate demand for goods and services, I propose to review the tax-free threshold from the current $250 to $300 and further widen the tax bands, with effect from 1 January 2015,” said Minister Chinamasa.

Reserve Bank of Zimbabwe Governor Dr John Mangudya hailed the budget saying it was developmental.

“It’s a developmental budget which has incentives which we do expect the business community to take advantage of. SMEs exporters are going to increase their exports which in turn improve liquidity in the economy,” said Dr Mangudya.