SOME decisions being made in this country defy logic to the extent that they cannot be allowed to pass unchallenged.
The point in question is the government’s introduction, through the Finance, Economic Development and Investment Promotion ministry, of a fresh tax on all foreign money leaving the country.
In the latest Statutory Instrument 80 of 2024, Finance minister Mthuli Ncube says government will tax US$0,02 on every US$1 leaving the country to ensure foreign currency availability locally.
While we perfectly understand that the country is desperately hungry for foreign currency and will do anything to preserve and lock inland the little forex available, we, however, believe we are barking up the wrong tree and we may end up frustrating the few foreign investors who have set up shop in Zimbabwe.
This is probably a first for a country to charge hefty tax on foreign money being remitted. This is all because Zimbabwe has no stable currency of its own with the recently-introduced Zimbabwe Gold (ZiG) money experiencing teething problems mainly due to lack of public confidence and the fact that the country is yet to strengthen it through increased production and exports.
This is also because Zimbabwe is a country sailing in troubled waters which is forcing it to institute such desperate measures.
Keep Reading
- Budget dampens workers’ hopes
- Govt issues $24 billion Covid-19 guarantees
- Letter to my People:They have no answers for Nero’s charisma
- ZMX to enhance farm profitability
Honestly speaking, taxing exporters at those levels is weird.
A country should generate most of its foreign currency by exporting what it produces, not levying hefty taxes on exporters, which increases the cost of doing business. It is clear that by so doing, government is targeting to tax multinationals’ dividends. But this does not work. It is one of the complaints that investors have raised about the Zimbabwe investment climate. It has been difficult to remit dividends to their countries. Now, if they do, they face heavy taxes. The more a country exports, the more foreign currency it will generate and the stronger that country’s own currency becomes.
And when people start exporting that country’s own currency, then a government is more than free to charge as much tax as it wishes on its money leaving its borders.
So if Zimbabwe was exporting enough, there was no need for it to tax foreign money that is leaving the country. When a country generates foreign currency it is usually preserved in government coffers and the State carefully uses it on critical issues.
What our government has decided to do typically shows that its foreign currency coffers are empty and it hopes to shore them up by taxing those sending their money outside.
It is undeniable that much of what the country has in terms of foreign currency is in private hands with estimations indicating that US$2,5 billion may be circulation outside the formal economy.
Because government acknowledges that Zimbabwe is now an informal economy, it should resolutely work to shore up the formal economy which offers it a better opportunity to beef up its foreign currency reserves.
This tax on foreign money leaving the country seems to suggest that we have completely run out of ideas.
What is quite curious about this issue is that Zimbabwe is on the cusp of becoming a global exporter of the world’s most sought-after mineral: Lithium, which on its own should help to generate a lot of foreign currency for the country.
And for years we have also been exporting a lot more minerals including gold, diamonds, chrome and the platinum group of metals. We have also been exporting agricultural produce. So where is all the foreign currency we are supposedly generating going?
The answer is corruption, especially when we are losing US$1,8 billion annually to the vice.
In other words even if government goes further to decree that no foreign money shall leave this country, as long as graft is at the high level it is today, our foreign currency coffers will forever remain empty and we will continue to come up with funny ideas to boost our money reserves.