Prosper Ndlovu, Business Editor
FINANCE and Economic Development Minister, Professor Mthuli Ncube yesterday announced a $421.6 billion National Budget for 2021 in which he handed down tax relief measures to cushion workers and corporates in line with the Government’s thrust to steer increased production and widen the job market.
The minister had to strike a delicate balance between maintaining a tight macro-economic policy, incentivising production and cushioning workers and vulnerable groups, as he presented his budget in Parliament, amid constant nods of approval by members of the August House.
Coming out of a background of austerity measures and the recent macro-economic and natural disaster shocks in the last two years, the 2021 budget buttresses the inclusive ideals of the National Development Strategy (NDS 1: 2021-2025).
President Mnangagwa launched the new blueprint last week to lead the way towards Vision 2030, succeeding the short-term Transitional Stabilisation Programme (TSP), which has scored major milestones and comes to an end next month.
The Treasury expects the country’s economy to rebound in 2021 from the consecutive two-year slump to record 7.4 percent growth with formal employment set to recover about 150 000 jobs lost due to Covid-19 pandemic. The positive growth outlook will be underpinned by anticipated annual inflation slowing down to an average of below 135 percent in 2021, while average month-on-month inflation is expected to be below 1 percent, said Prof Ncube.
He said the official exchange rate, which has stabilised at around US$1: ZWL$81 throughout the months of July to November, was expected to persist. The implementation of NDS1 starts with the 2021 National Budget, under the theme: “Building Resilience and Sustainable Economic Recovery,” said Prof Ncube as he stressed the importance of building resilience against various shocks.
“Similarly, incomes are also expected to rise, with per GNI per capita expected to increase to US$1 835 from current levels of US$1 156. 51. Beyond 2021, growth is expected to level off to around five percent annually,” he said.
“The projected growth trajectory assumes reduced severity of Covid-19 pandemic as vaccine coverage expands and therapies improve. The attendant macro-economic stability, improved supply of electricity, favourable agricultural season and effective policy implementation will also assist the growth and development agenda.”
Tax reprieve for workers, corporates
In order to improve workers’ disposable incomes and steer increased aggregate demand and savings, Prof Ncube doubled the tax-free threshold from $5 000 per month to $10 000 per month. He further adjusted the tax bands to begin at $10 001 and end at ZWL$250 000 per month, above which the highest marginal tax rate of 40 percent will apply. The above measures are effective from 1 January 2021.
The minister also proposed an upward review of the bonus tax-free threshold from $5 000 to $25 000, with effect from 1 November 2020. The measure buttresses the recent salary and wage adjustments for public and private sector workers.
On the Intermediated Money Transfer Tax (IMTT), popularly known as the 2c tax, the Treasury boss said taxation will be applicable on transactions starting from $500 from the previous $300. The maximum tax payable per transaction by corporates has also been reviewed from the current $25 000 to $800 000 on transactions with values exceeding $40 million.
The minister further exempted from tax, the transfer of Zimbabwe Manpower Development Fund training levy, which is calculated on the gross wage bill. The tax-free threshold for foreign currency transactions remains at US$5. The IMTT reviews are effective from 1 January 2021.
However, Prof Ncube said Government fees, levies and charges, which have remained stagnant since the beginning of the year will be reviewed in line with economic developments.
“I, therefore, call upon ministries and departments that have not reviewed fees, levies and charges to do so by 1 January 2021,” he said, adding: “The review process for social service fees should take into account affordability.” In view of the improved transport system, Prof Ncube also said the civil servants motor vehicle scheme will be ceased with effect from 30 June 2021.
Bold measures to support the productive sector
In order to promote value addition, improve domestic production the Treasury resolved to retain rebate duty on leather, fertilizer manufacturers and duty-free importation of key inputs to the dairy sector. The budget retains the youth employment tax credit, which has been reviewed upwards from $500 to $1500.
It also reduces the corporate income tax rate from 25 to 24 percent for mining firms with effect from 1 January 2021. In order to minimise the tax burden on corporates, Treasury has proposed rebasing to local currency equivalent all unredeemed capital allowances of the outstanding forex invoices as by 1 January 2021. Tax incentives have also been proposed for real estate investment trusts.
Prof Ncube said developing vibrant productive value chains was at the heart of the 2021 budget, which seeks to promote robust industrialisation and overall invigoration of domestic using local raw materials. He hoped that this approach would restore and strengthen synergies among sectors and increase employment opportunities for inclusive growth.
Of the $421,6 billion budget Prof Ncube said capital expenditures would constitute $131.6 billion (5.5% of GDP), while current expenditures are expected to consume ZWL$290 billion (12.1% of GDP). Treasury, therefore, projects to collect $390.8 billion revenue with a budget deficit of $30.8 billion (-1.3% of GDP) targeted in 2021.
“The targeted fiscal deficit is also in line with the fiscal consolidation stance which strictly limits the fiscal targeted deficit to below two percent of GDP throughout the National Development Strategy 1 period,” he said.
The budget projects that development partner assistance will amount to US$841.5 million, of which US$559.3 million is expected from bilateral, whilst US$282.1 million will be from multilateral partners.
Under the 2021 Budget goods and services would cut $59.4 billion, employment costs $142.6 billion, interest $1.5 billion and transfers $86.5 billion, with the balance reserved for capital development programmes.
Key budget allocations
Given the importance of infrastructure as an economic enabler, Prof Ncube pegged the overall budget support under the 2021 infrastructure investment programme at $139.8 billion. The primary and secondary education sector has one of the highest overall allocations at $55.2 billion as well as health, which got $54.7 billion. Government targets to increase agriculture output to US$8.2 billion by 2025 hence $46.3 billion has been allocated to the sector.
Under the transport sector support towards roads amounts to $31.6 billion. The aviation sector has $200 million allocated for upgrade works at the Joshua Mqabuko Nkomo International Airport in Bulawayo with separate amounts for other projects.
Under the energy $900 million will cover local taxes for the Hwange 7 and 8 Expansion Project with an additional $32.2 billion expected to be disbursed through the US$997.7 million loan facility from China Exim Bank.
Other key allocations include devolution projects, which received $19.5 billion with higher education settling for $14.4 billion. To scale up social protection to all vulnerable groups an allocation of $5.5 billion has been made. On the peace and security cluster, defence, security and war veterans have been allocated $23.8 billion while home affairs got $23.6 billion.
To promote welfare of war veterans and their families the budget further proposed an additional equivalent to US$37.5 million for the War Veterans Fund through the National Venture Fund.
Looking into 2021 and beyond, and in line with the NDS1 pillars, the minister said that the Government will pay particular attention to key priorities that include; inclusive growth and macro-stability, developing and supporting productive value chains, optimising value of the vast natural resources, infrastructure, ICT and digital economy, social protection, human capital development and effective institution building.