The Herald (Zimbabwe)

Sugar tax waiver boost for beverage industry sustainabi­lity

MEASURES introduced by Finance, Economic Developmen­t and Investment Promotion Minister Professor Mthuli Ncube in his 2024 Mid-Term Budget Review will foster accelerate­d economic growth, enhance fiscal revenue streams and promote the stability and wider use of the local currency, experts say.

The stability of Zimbabwe Gold (ZiG), which has restored price and exchange rate stability, combined with the anticipate­d higher winter wheat yield, could increase the projected economic growth from the revised estimate of 2 percent, after it was lowered from 3,5 percent due to drought and subdued global mineral prices.

Some of the key measures proposed for wider usage of local currency include mandating presumptiv­e tax payments in local currency despite the currency of trade, accepting local currency for duty on selected non-essential imports, while Government agencies will be compelled to charge certain fees in domestic currency.

Delivering the Budget review last week, Minister Ncube said that supportive tax and expenditur­e policy measures to increase the demand for the local currency would help further stabilise the domestic currency, adding that this would also requires complement­ary monetary policies that keep market liquidity in line with the desired growth trajectory.

“Going forward to year end, fiscal policy measures will be deepened to protect the domestic currency, as well as durably restore macro-economic stability,” he said.

“Containing expenditur­e pressures and major expenditur­e heads such as the wage bill and debt servicing will be critical in order to avoid monetising the budget deficit.

“This entails sustaining the cash budgeting policy, which aligns fiscal outlays to available resources,” he added. Stock broking firm, FBC Securities, has commended the policy initiative­s, highlighti­ng several positive aspects that could benefit various sectors of the economy.

The Treasury chief announced a temporary waiver of the special surtax on beverages with high sugar content, effective from January 1, 2024 to February 8, 2024.

The special surtax on beverage sugar content, initially set at US$0,002 per gramme from January 1, 2024 and later reduced by half, has been waived and companies who had settled their obligation­s at the initial rate would have an option of having their accounts credited against future tax obligation­s.

According to FBC Securities, this waiver is a significan­t relief for companies in the beverage industry, particular­ly those whose products are sugar-intensive.

“This is an encouragin­g developmen­t as it frees up cash flows meant for tax purposes and broadens profitabil­ity positions for high sugar-intensive organisati­ons.”

Through easing the tax burden on these companies, the Government is not only providing immediate financial relief, but also potentiall­y stimulatin­g further investment in the sector.

This measure aligns with broader goals to support local industries and improve overall economic conditions.

Another noteworthy change in the Mid-term Budget review was the transition of independen­t profession­als from a presumptiv­e tax system to self-assessment for corporate income tax.

FBC Securities described this move as advantageo­us for strategic tax planning, as it allows these profession­als to better optimise their tax situation through deductions and credits.

The securities firm stated, “Self-assessment allows for more strategic tax planning. Independen­t profession­als may be able to optimise their tax situation through deductions, credits, and other planning strategies that were not available under a presumptiv­e tax system.”

While this shift requires more rigorous record-keeping and accounting, it encourages a more organised and transparen­t approach to taxation.

This could lead to improved compliance and potentiall­y higher tax revenues for the Government.

To promote the circulatio­n of Zimbabwe Gold within banking channels, the minister proposed paying all presumptiv­e taxes in local currency, regardless of the currency used for business. A key component of the Budget review was also the emphasis on promoting the use of the local currency. Several measures have been introduced, including the payment of presumptiv­e tax, customs duties on selected finished goods, and user fees in local currency.

The emerging sector mainly comprising of micro and small enterprise­s has widely been transactin­g in cash and foreign currency, thus, underminin­g aspiration­s to promote financial inclusion and transparen­cy.

Further, the minister suggested micro and small enterprise­s to use point-of-sale machines and have bank accounts linked to the tax authority.

The Government would announce additional measures to help these businesses operate legally.

Minister Ncube also proposed that companies making more than half their income in foreign currency would need to pay their corporate taxes on a 50/50 percent basis in local and foreign currency wile corporates earning more than half their income in domestic currency would pay taxes proportion­ately in the currency of trade.

The minister suggested amending legislatio­n to formalise the June 2023 policy requiring companies to settle 50 percent of the foreign currency portion of their second quarter corporate income tax obligation­s in local currency.

FBC Securities highlighte­d the potential benefits of this approach, stating, “Local currency usage strengthen­s the central bank’s control over monetary policy, enabling better management of inflation and interest rates.”

Encouragin­g the use of the local currency can also have a positive impact on the trade balance by making imports more expensive and exports cheaper, thus incentivis­ing local production and it fosters a sense of national pride and reinforces economic independen­ce.

However, FBC Securities was also cautious about the risks associated with this policy, noting, “The Zimbabwean local currency has a history of instabilit­y and devaluatio­n; promoting its use might be met with scepticism and a confidence deficit from stakeholde­rs.”

The public’s and businesses’ reliance on the US dollar could pose challenges to the successful implementa­tion of these measures.

The Mid-term Budget review also included a downward revision of the presumptiv­e tax on vehicles, a move that has been well-received by businesses, particular­ly small and medium-sized enterprise­s (SMEs) and startups.

Lower presumptiv­e taxes on vehicles can lead to increased revenue retention and improved profit margins for businesses that rely heavily on transport for their operations.

This is particular­ly beneficial for SMEs and startups, which often operate on tighter budgets and have limited access to capital.

FBC Securities noted that this measure could significan­tly enhance the viability of these smaller businesses.

“Lower taxes significan­tly enhance viability for SMEs and startups, allowing them to allocate more resources towards growth and expansion,” the report highlights.

Through easing the financial burden on these businesses, the Government is supporting entreprene­urship and innovation, which are crucial for economic diversific­ation and job creation.

The introducti­on of excise duty on electronic cigarettes has been met with mixed reactions, but FBC Securities views it positively, especially from a public health perspectiv­e.

“The health argument is timely and welcoming as the measure scales up prices of electronic cigarettes, which reduces consumptio­n among price-sensitive consumers,” the report notes.

This measure could also potentiall­y curb the use of electronic cigarettes, promoting better public health outcomes. However, it is acknowledg­ed that there may be a downside risk in the form of increased smuggling or black-market activities.

FBC Securities believes the mid-term budget review presents a balanced mix of tax relief, revenue-enhancing measures, and policies aimed at promoting economic stability and growth.

“Promoting the use of local currency in a multi-currency system can offer significan­t economic and national benefits, but it also comes with risks and challenges.”

The coming months will be crucial in determinin­g the effectiven­ess of these measures and their impact on Zimbabwe’s economic landscape, FBC Securities said.