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Prosper Ndlovu, Business Editor
GOVERNMENT has tightened its subsidies issuance framework to curb economic leakages amid reports Treasury has sacrificed up to US$2.3 billion in potential revenue through granting of tax incentives between 2011 and 2019 as part of efforts to stimulate productive sector operations.

Although tax holidays, subsidies and provision of stimulus funding for the private sector have become key features of the country’s national budgets each year, Treasury has stressed the need to streamline these in line with the fiscal consolidation objectives.

In the past, there have been concerns over abuse of subsidies and tax incentives by some economic players in the past years amid accusations of fiscal indiscipline and bloated public expenditure, which weighed heavily on the entire economy.

This has necessitated implementation of tough austerity measures under the Transitional Stabilisation Programme (TSP:2018-2020), which was anchored on fiscal consolidation and has been credited for bringing about economic stability, according to the Treasury.

Consistent with the overarching goal of the successor blue-print – the National Development Strategy 1 2021-2025 (NDS1), Government has stressed the need to come up with a comprehensive guiding framework regarding subsidies and other fiscal incentives.

The proposed framework will do away with all subsidies that are creating distortions in the economy and use targeted approach so as to make sure that those benefitting from the subsidy are those originally targeted and in genuine need of such assistance.
Industries or individuals who can operate profitably without support, unless their activity has substantial positive outcomes for society, might not be eligible.

The matter was tabled at this week’s Cabinet meeting where the Government considered and approved proposals on the rationalisation of subsidies as presented by the Minister of Finance and Economic Development, Professor Mthuli Ncube.

In her post-Cabinet media briefing on Wednesday Information, Publicity and Broadcasting Services Minister, Monica Mutsvangwa, said the rationalisation framework was meant to ensure that subsidies meet a specific public policy objectives.

This entails using subsidies to remedy an identified market failure while being in minimum size, necessary to achieve such an objective, she said.

The minister revealed that tax incentives for the productive sector, in particular, have come in as a huge sacrifice to the national purse.

“Government has continued to support the productive sectors of the economy by extending tax concessions, as a way of improving viability, productivity and competitiveness.

“As a result, the Government has foregone about US$2.3 billion through tax incentives during the period 2011 to May 2019,” said Minister Mutsvangwa.

In that regard, Cabinet has noted that previous economic blueprints, despite having similar targets, had fallen short on implementation.

Hence NDS 1 was premised on the need for bold and transformative measures that will ensure achievement of the country’s vision of an empowered and prosperous upper middle-income society by 2030, said the minister.

The rationalisation of subsidies framework, thus, is expected to steer the economy on a growth trajectory averaging five percent, supported by a sustainable annual fiscal deficit target of around 1.2 percent of GDP, exchange rate stability and single digit inflation.

Regarding agriculture, the minister said the Government has supported the sector with a subsidy component on both inputs and specific crop producer prices, mainly to address food self-sufficiency, improve the welfare of the peasant farmers and make mealie-meal affordable to disadvantaged groups.

Currently, the Government is financing several programmes including farm mechanisation, inputs and selling price support covering strategic crops such as maize, soya beans, cotton and wheat.