FINANCE and Economic Planning minister Patrick Chinamasa’s tax measures outlined in the 2018 National Budget need to be properly structured to incentivise investors as well as boost the productive sectors of the economy, tax experts have said.
By FIDELITY MHLANGA
Chinamasa’s budget proposed a raft of tax measures that will have an impact on power projects, tobacco, bookmakers and the mining sector among others.
It is the tax measures Chinamasa took that will determine government success in the collection of the envisioned $4,3 billion in tax revenue.
Next year government sees total expenditure at $5,743 billion with $3,27 billion to be channelled towards employment costs.
The Finance minister proposed to exempt power generation projects from paying corporate income tax for the first five years of operation, with effect from January 1, 2018. Thereafter, a corporate tax rate of 15% will apply.
He maintained that in view of the anticipated surge in demand for electricity, consistent with the growth trajectory expected under the new economic dispensation, investment in power generation projects such as small hydro and solar plants is critical.
EY executive director for Business Tax Services, Rameck Masaire said the tax relief has to be structured properly in order to afford investors the opportunity to fully benefit from the incentives.
“The proposal provides a good incubation period for the project, which allows the investors an opportunity to channel resources towards the project instead of paying corporate taxes. It is not usual for new business to start paying tax after their fourth year of operation,” he said.
“It is thus critical that the tax entities be taxed at 0% for the first five years, so that they able to carry forward losses that are likely to arise from the capital expenditure incurred in setting up the power project,” he said.
Institute of Chartered Accountant of Zimbabwe chief executive officer, Matts Kunaka weighed in saying, while the budget was business friendly, the tax exemption on power projects needed to be formalised as a tax holiday and not as an exemption as is currently the case.
Economist Prosper Chitambara said by exempting power projects from paying tax, government aimed at boosting the key fundamentals of the economy.
“The measure on power projects is aimed to boost the productive sector of the economy and improve the capacity of key enablers of the economy. So the tax is positive in that sense,” he said.
Chinamasa also moved to levy 5% of gross takings by bookmakers, with effect from January 1 2018.
This comes after the proliferation of sports betting houses across the country as a recreational activity, generating in excess of $30 million per annum.
Chitambara said taxing betting houses was now a trend the world over, adding that this would shore up government revenue.
“Governments are exploring for options of taxing betting houses and some are increasing taxes on business activities that has negative externality for example cigarettes. This enables government to look for additional revenue,” he said.
Chinamasa also moved to impose a moratorium on tax arrears for companies assisted by the Zimbabwe Asset Management Corporation.
He also proposed to share a portion up to $5 million of the amounts collected through the informal trader’s tax, with those qualifying entitled to participate in both a loan scheme and a facility designed to formalise their operations — a development that will bring the informal sector into the mainstream economy.
In order to ease the tax burden on tobacco farmers who are experiencing viability challenges, the budget proposed to exempt registered buyers of tobacco from the requirement to withhold the 10% tax, with effect from January 1 2018.
Economist Clemence Machadu said the decision to exempt registered buyers of tobacco from the requirement to withhold the 10%, apparently to cushion small tobacco growers who incur huge growing costs was laudable, but the fundamental challenge lay in the lack of proper and adequate extension services in the countryside.
“For a government that is trying to encourage other small businesses to pay their taxes, it might set a wrong precedent, as they will avoid paying tax, querying how different they are from small tobacco growers,” he said, adding that government was addressing the symptoms and not the problem.
“By bringing competitiveness to growers who are at the primary stage of the tobacco value chain, it will reinforce competitiveness throughout the entire value chain, which is really what should be the ideal scenario.”
The budget also offered to extend the rebate of duty facility on capital equipment imported by approved medical institutions and practitioners, with effect from January 1, 2018 to improve citizens’ access to quality health facilities.
Chinamasa also proposed to exempt goat and sheep meat from VAT, with effect from January next year.
The 2018 budget proposed a downward review of ground rental fees for diamonds in retrospect from $3 000 to $225 per hectare per annum.
The ground rental fee applicable to diamond concessions is currently levied at $3 000 per hectare per annum, set with a view to discourage speculative holding of claims.
The budget proposed to further defer implementation of the 15% tax export tax on un-beneficiated and semi-beneficiated platinum to January 1 2019, cognisant of investment in the platinum sector that has already been made by some mining houses towards attaining milestones in the agreed road map.
“The 15% unbeneficiated tax was introduced as a measure to promote value additions locally. Now that the plants have not yet been built we may lose both the export tax and dollars from exports, hence new proposal to export and earn dollars,” said Tax Management services managing director Tendai Mavima.
The budget also proposes to reduce the export tax from 15% to staggered rates of tax, with effect from January 1, 2019 as follows: platinum group metals concentrate 5%, white matte (2,5%), PGM and base metal 1%.
On goods and services the 2018 budget proposes to review the value added tax (VAT) withholding rate from 10% to 5% of the value of taxable supplies, with effect from January 1, 2018.
This comes after in 2016, government introduced a 10% withholding VAT on output tax charged by suppliers of goods and services in order to minimise cash flow challenges on VAT registered operators.
In order to reduce the cost of doing business, Chinamasa proposed that the fees on cancellation of export bill of entry reduced to $10 with effect
from January 1, 2018 from the current $50.