Earnings surrender an export tax: World Bank

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Reserve Bank of Zimbabwe

The World Bank has said the move by the Reserve Bank of Zimbabwe (RBZ) requiring exporters to surrender their foreign currency earnings, is regressive and akin to an imposition of an export tax.

BY NDAMU SANDU

In August, RBZ decreed that proceeds from the exports of platinum, chrome, gold, diamonds, tobacco and cotton have to be surrendered to the bank to ensure that the nostro stabilisation facility is supported by a continuous stream of export receipts. It said the move was designed to improve the efficient utilisation of foreign exchange and bring equity in the foreign exchange market.

In a report, Macro Poverty Outlook for Zimbabwe, the World Bank said the surrender of export earnings had serious ramifications on labour-intensive activities such as mining and tobacco farming.

“Exporters of gold, tobacco, platinum and nickel are required to surrender export earnings at the official rate, which amounts to an export tax which is only partially offset by an export subsidy of 5-10%,” the World Bank said.

“Export taxes are regressive, as they disproportionately hit labour-intensive activities (gold mining and tobacco farming), negatively affecting low-income groups.”

Zimbabwe is battling a foreign currency crisis due to low confidence. The crisis has been worsened by the introduction of bond notes, which pushed out the dollar from the official channels.

Although authorities maintain the bond note is at par with the dollar, the surrogate currency has depreciated on the parallel market, losing as much as half of its value.

The foreign currency shortages have also seen companies sourcing at least 25% of their forex requirements on the parallel market passing on the costs to consumers, triggering a spike in prices. Authorities have reacted to the thriving parallel market by introducing stiffer penalties such a 10-year jail term for illegal forex dealers
The World Bank said exchange rate dynamics pose a significant risk to macro-economic stability.

“The gap between US dollar, bond notes and bank [RTGS] balances might lead to rapid inflation. Government reliance on RBZ financing [overdraft] increases the risk. Inflation will hurt the poor most,” it said.