The government has increased the tax-free threshold by 100% with effect from August this year in an attempt to boost Zimbabweans’ disposable income amid crippling inflation.
Presenting his budget review statement on Thursday, Finance Minister Mthuli Ncube noted that the tax-free threshold was increased to ZWL$300,000 or USD1,200 per annum for remuneration earned in local and foreign currency, respectively, in January this year.
He said, “Adjustments to wages and salaries in response to macroeconomic developments have resulted in bracket creep on local currency denominated remuneration. I, therefore, propose to review the Tax-Free Threshold on local currency remuneration from ZWL$300,000 to ZWL$600,000 per annum and also adjust the tax bands to end at ZWL$12 million from the current ZWL$6,000,000 per annum, above which tax will be levied at a rate of 40 percent, with effect from 1 August 2022.
“This measure is envisaged to increase disposable income, spur consumption spending and income for corporates. I also propose to review the local currency tax-free bonus threshold from ZWL$100,000 to ZWL$500,000, with effect from 1 November 2022.
The finance minister also said current legislation permits businesses to trade in either local or foreign currency.
“Consistent with this legislative provision, VAT registered operators are compelled to account for tax in the currency of trade. In order to assess the amount of VAT payable or refundable, output tax should be offset against input tax incurred in the same currency. This, however, creates an administrative burden for some VAT registered operators whose sales and purchases are transacted in different currencies. This is particularly common on foreign currency sales of imported goods and services that are liable to import VAT in local currency.
“I, therefore, propose to provide VAT registered operators with the option to pay duty in foreign currency to facilitate offsetting of output and input tax in the same currency.
Ncube noted that innovation and research are pillars towards sustainable development and industrialization and the education and training system in Zimbabwe is now geared towards this initiative.
“In that regard, it is important that local research institutions be capacitated through infrastructure that promotes knowledge, which is adaptive and resilient to common and emerging threats such as climate change, infectious diseases and drug resistance, among others. I, therefore, propose to introduce a Rebate of Duty on equipment for use in scientific research imported by institutions approved by Ministries responsible for Health, Mining, Agriculture and Higher and Tertiary Education.
He further said global developments and their impact on the domestic economy remind Zimbabwans on the need to upscale domestic production of goods and services in order to increase production and exports as well as reduce the import bill.
“The evidence of resilience anchored on strong economic fundamentals such as enhanced capacity to generate adequate foreign currency, decent economic growth, sustainable budget deficit and current account surplus need to be sustained.
“The resilience is as a result of sustained economic transformation ushered in by the New Dispensation in the form of sound scale and monetary policies, increased investment in infrastructure and other productive sectors, governance reforms, ease of doing business reforms and the engagement and re- engagement drive. The depreciation of the local currency and rising inflation is a challenge that government is tackling and hence, requires the support of all stakeholders and citizens.”