Align tax legislation with monetary policy — CZI

26 Oct, 2020 - 00:10 0 Views
Align tax legislation with monetary policy — CZI

The Chronicle

Oliver Kazunga, Senior Business Reporter
Captains of industry have called on the Government to realign the tax legislation with monetary policy as well as reduce the export retention threshold in the 2021 national budget.

The Minister of Finance and Economic Development Minister Professor Mthuli Ncube is expected to present the upcoming fiscal policy statement next month. In its submissions as part of the pre-budget consultative process, the Confederation of Zimbabwe Industries (CZI), said the reduction of the export retention threshold would avail more forex to companies and stimulate local production. The Pay As You Earn (PAYE) also needs to be adjusted periodically in order to preserve purchasing power of the consumers, said CZI. This is on account of the fact that effective tax rates have increased as taxpayers move to higher tax bands on account of inflationary salary increases.

“Due to a depressed aggregate demand environment, business is asking the Government not to introduce new taxes as well as reducing the export retention,” said CZI.

Among other statutory obligations, industry and business are required to contribute corporate income tax and the two percent Intermediated Money Transfer Tax (IMTT), which the Government introduced in October 2018. CZI said the two percent IMTT has an effect of reducing disposable incomes thereby reducing funds for investment.

“It is also considered as a penalty for doing business. There is no alignment between the ZWL and US$ salary tables. This makes it difficult to split PAYE where employees are paid in a blend of forex and ZWL,” said the industry body.

“The provisions in Section 4 of the Finance Act and the methodologies in directives published by Zimra for the payment of certain taxes in foreign currencies are not aligned, thereby creating significant tax uncertainties.”

In this context, CZI said the legislation needs to be framed clearly to allow for full compliance by taxpayers. It also stated that there are inconsistencies between the tax legislation and the monetary policies and the pronounced Government policies relating to legal tender and a mono-currency roadmap.

“Of particular concern is the requirement for each taxpayer to be assessed separately for forex and ZWL$ transactions when the taxpayer is organised as a single business entity,” said CZI.

“Taxpayers must have a choice as to the currency used in settling tax obligations, in a market determined exchange rate environment.”

CZI said the Company Income Tax Quarterly Tax Payments (QPDs), for instance, were based on the estimated annual income tax bill and thus the forecasting of business performance and hence the annual tax bill was very difficult if not impossible in an inflationary environment.

“Even if one is able to accurately forecast both inflation and the annual revenues, the amounts due at the beginning of the year are likely to exceed the gross revenues.

“There is a need for some mechanism to index the QPDs for time value of money. Taxpayers should have the option to elect to pay quarterly taxes based on actual performance,” said CZI.

It said the reverting to multi-currency trading and designation of the ZWL$ as the sole legal tender requires that fiscal devices be reconfigured to record sales in two currencies. However, CZI said the available software and hardware are not compatible with the existing set up.

“Taxpayers are being forced to acquire new gadgets to comply with the fiscalisation legislation. This is a costly investment, which could be discarded at whim of the now common policy shifts and as the mono-currency programme is resuscitated,” said the industry body.

“Should the country spend the foreign currency resource on fiscal devices where there is no clarity of policy direction?”

While the Finance Act provides for calculation of income tax on disposal of option shares offered to employees before the 1st of February 2009, CZI said the introduction of a local currency has resulted in an environment similar to the period when the multicurrency regime was introduced. This makes it difficult to determine the cost base to be used in establishing the benefit taxable in the hands of the employee, it noted.

CZI also urged the Government to create a user-friendly taxation framework for the Small-to-Medium Enterprises (SMEs) sector to enhance revenue collections without “killing” the big business and over burdening the formal sector.

The industry representative body also underscored the need for the Government to continue supporting export growth, import substitution and the Local Content Policy.

It noted that one of the key measures to ensure export competitiveness was to allow all raw materials to be imported duty free. This, it is believed, would enable locally manufactured goods to compete with imports as well as to compete in the export markets where products from Zimbabwe compete with goods sourced from other countries where domestic industry procures some of the raw materials. — @okazunga

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