The 2024 Mid-Term Budget and Economic Review, delivered on July 25, 2024, introduced a series of significant changes aimed at fostering economic growth, strengthening tax administration and promoting the use of the local currency in Zimbabwe. As businesses and individuals digest these updates, it is important to understand the specific areas of focus, the potential impacts on different sectors and the broader implications for the Zimbabwean economy. This blog post breaks down the key elements of the review, providing insights into how these changes might affect you.
Foreign Currency Management and Local Currency Promotion
One of the major highlights of the 2024 Mid-Term Budget is the emphasis on managing foreign currency earnings and promoting the circulation of the local currency, ZiG. Companies earning more than 50% of their income in foreign currency are now required to pay half of their quarterly provisional income tax in local currency. This policy is designed to increase the usage of ZiG within the economy, thereby bolstering its value and circulation. However, this change also introduces additional complexity for businesses, particularly those with substantial foreign currency earnings, as they must now manage dual currency tax obligations. On the other hand, companies with less than 50% of their income in foreign currency are allowed to continue paying the income tax in the currency in which the income is earned, providing some relief from the administrative burden.
Self-Employed Professionals and Informal Sectors
The 2024 budget introduces new requirements for self-employed professionals who will now be required to file self-assessment returns and obtain tax clearance certificate as a requirement for their licensing and registration starting in January 2025. This move is expected to bring more self-emplyed professionals into the formal tax system, potentially increasing revenue collection. Transitional provisions have also been made for presumptive tax credits, allowing professionals to gradually adapt to the new system. Additionally, revised and reduced presumptive tax rates for various sectors, mostly denominated in USD with an option to pay in ZiG, aim to ease the tax burden on informal traders and small business owners. These changes are likely to encourage more businesses to formalize their operations, contributing to a broader tax base.
Capital Gains and Automated Financial Transactions Taxes
The mid-term budget also brought temporary changes to capital gains tax, particularly for marketable securities. A reduced withholding tax rate for listed securities was suspended, with a flat rate of 2% now applicable, while the withholding tax for unlisted marketable securities increased from 2% to 5%. These adjustments, effective for six months from June 28, 2024, aim to incentivize investment in the stock market, potentially boosting trading activity. Additionally, the automated financial transactions tax on withdrawals above US$100 equivalent has been reduced to 0.05%, slightly lowering transaction costs for larger withdrawals. These tax adjustments reflect the government’s efforts to strike a balance between encouraging investment and maintaining a stable revenue stream.
Strengthening Tax Compliance and Revenue Collection
To further strengthen tax compliance, the budget introduces stricter conditions for VAT deferment on capital goods, including thorough tax compliance checks and penalties for defaulters. While the deferment period remains available for up to 180 days for compliant importers, the Minister now has the discretion to adjust this period or deny deferment altogether for specific goods or entities with a history of tax defaults. This measure is expected to improve tax collection and prevent abuse of the deferment facility. Moreover, new restrictions on purchases from manufacturers and wholesalers to registered businesses with valid tax clearance certificates are intended to formalize the retail sector and curb informal trading. While these measures could enhance revenue collection, they may also impose additional compliance burdens on businesses.
Sector-Specific Taxes and the Drive for Economic Formalization
The 2024 budget also introduces sector-specific taxes, such as a special surtax on the sugar content of beverages, which could lead to higher beverage prices but also generate additional revenue for the government. In the fuel sector, new measures to combat fraud include mandatory duty payment at the port of entry for fuel under the Removal in Transit Facility, with certain exemptions. These changes are designed to curb smuggling and ensure proper duty payment, but they also introduce new administrative challenges for legitimate businesses. Furthermore, the requirement for tax clearance certificates for various professionals, mandatory for licensing and registration renewals from 2025 onwards, underscores the government’s commitment to broadening the tax base and ensuring compliance across all sectors.
Conclusion
The 2024 Mid-Term Budget and Economic Review presents a comprehensive set of measures aimed at promoting economic transformation, enhancing tax compliance, and encouraging the use of the local currency. While these changes have the potential to foster growth and stability, their implementation and impact will need to be carefully monitored. Businesses and individuals alike must stay informed and adapt to these evolving tax regulations to navigate the challenges and opportunities they present. As Zimbabwe continues its journey toward economic reform, the success of these measures will depend on the government’s ability to balance revenue generation with the need to support business growth and economic resilience.
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Richard Dimingo is the Practice Manager at Next Investments, with over twenty-nine years of experience in accounting, tax and management consulting. As a multi-disciplined practitioner, Richard has an extensive background that includes roles as a software applications developer, estate planning consultant, systems accountant and transformation life coach. He holds more than thirty certifications in the personal development field.
Richard is a licensed tax agent registered with the Zimbabwe Revenue Authority and a registered tax accountant authorized to practice by the Public Accountants and Auditors Board (PAAB) Zimbabwe.
He is also the developer of .NEXT, a groundbreaking technology designed for business and personal transformation. This innovative technology uncovers, analyzes, and resolves underlying unhelpful subconscious mind programming that stifle business innovation, inhibit personal growth, and contribute to ill-health and unhealthy relationship dynamics.
Richard Dimingo is the Practice Manager at Next Investments, with over twenty-nine years of experience in accounting, tax and management consulting. As a multi-disciplined practitioner, Richard has an extensive background that includes roles as a software applications developer, estate planning consultant, systems accountant and transformation life coach. He holds more than thirty certifications in the personal development field.
Richard is a licensed tax agent registered with the Zimbabwe Revenue Authority and a registered tax accountant authorized to practice by the Public Accountants and Auditors Board (PAAB) Zimbabwe.
He is also the developer of .NEXT, a groundbreaking technology designed for business and personal transformation. This innovative technology uncovers, analyzes, and resolves underlying unhelpful subconscious mind programming that stifle business innovation, inhibit personal growth, and contribute to ill-health and unhealthy relationship dynamics.