IN the distinctly controversial 2024 national budget presented by the Finance Minister Mthuli Ncube, earlier this month, he reviewed income tax thresholds to levels that can pin down even road-side beggars in a bid to expand the tax revenue base for the government.
Despite a 1 193% rise compared to the 2023 national budget, most, if not all, of the proposals in the 2024 budget have sent mixed signals on the prospects of surviving the terrain given the already projected challenges like El Niño drought in the region.
Zimbabwe, as a highly informal market which sees over 80% of its economic activities happening in the informal channels, has failed to harness sources of funds for the government as taxes mainly target regulated economic players.
The fiscal body, over the past 2-years or so, has been largely relying on heavily taxing the few formal market players, which had led to subdued financial performance particularly from formal retailers as reported in their respective financial statements.
In a bid to maximize tax revenue, and sources of government funds, the 2024 national budget seeks to pin down on every possible avenue of siphoning money from the masses, including through adjusted income tax brackets and thresholds.
Income tax is a type of tax the government imposes on income generated by businesses and individuals within their jurisdiction or line of work. This is subject to tax thresholds, above which is referred to as taxable income.
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The tax threshold is the amount of income below which you do not pay any income tax. Typical sources of taxable income for individuals include remuneration (income from employment such as, salaries, wages, bonuses, overtime pay, taxable (fringe) benefits, allowances and certain lump sum benefits); profits or losses from a business or trade; income or profits arising from an individual being a beneficiary of a trust, director's fees; investment income such as interest and foreign dividends; rental profit or losses; income from royalties; annuities, pension income, and certain capital gains.
Effective the first of January, 2024, the US$300 Covid allowance for civil servants will become part of pensionable income, and therefore becomes taxable. The tax-free threshold was reviewed to ZWL750,000 per month and ZWL9 million per year. In US$ terms, this converts to a circa US$1 350 threshold per year (average exchange rate) as tax free.
This also means if you earn over US$113 a month then you become subject to income tax. It is imperative to note that this is the bare minimum income for blue-collar workers as well as informal sector employees. Comparatively, down south the annual tax-free threshold is a circa US$4 600 in South Africa.
This is over 3-folds higher than the new threshold set in Zimbabwe. This new measure comes along the increment in VAT which is estimated to see an increase in overall prices of products as retailers in both formal and informal market, as well as sole traders, adjust for the 15% standard VAT rate. These two measures (VAT and tax-free threshold) will double down on overall spend in the economy at a time the Central Bank is tightening screws on money supply to curb inflation and exchange rate run-away.
Zimbabweans will have less disposable income to spend on goods and services going forward, which has a ripple effect on consumer spending and economic growth.
As a clarity, with the already subdued level of disposable income, taxing the low earners means that people will have less money to spend on essential items.
The adjustment on VAT will, on the side, lead to a surge in the prices of most basic commodities, including bread and mealie-meal.
The increased taxes will also discourage workers and investing activities, as economic participators may feel that their efforts are not being adequately rewarded.
- Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — twdumah@gmail.com or tinashed@equityaxis.com, Twitter: TWDuma_