Here’s what’s fuelling the economy

01 Nov, 2019 - 00:11 0 Views
Here’s what’s fuelling the economy

eBusiness Weekly

Business Writer
Zimbabwe might be experiencing limited supplies of fuel, but the little that is being sold is helping Government generate the bulk of the country’s revenues, Treasury figures for the seven months to July 2019 show.

According to Treasury’s Consolidated Statement of Financial Performance for the seven months to July 2019, Government generated $1,22 billion (or 18 percent of total revenue) from excise duty on fuel, the highest contribution from all its revenue streams.

This is despite imports of fuel having gone down from the comparative prior year with the commodity constantly in short supply.

Analysts, however, say generating such a significant portion of revenue from consumptive tax, reflects negatively on the state of the economy.

In the United States, half of all federal revenue (51 percent) comes from individual income taxes, but latest figures show that only 13 percent came from individual tax. In 2016, individual taxes contributed 21,2 percent of the US$3,4 million that was collected by Zimra.

During the period under review, Government was levying excise duty of ZWL$0,90 and ZWL$1,15 per litre of diesel and petrol respectively.

This has since been changed with effect from August with excise duty now calculated using ad valorem rates of 40 percent and 45 percent for diesel and petrol respectively, according to Zimra.

Government says it is using some of the fuel excise duty proceeds to subsidise public transport system through ZUPCO.  In August Finance and Economic Development Minister Ncube, revealed that government was coughing about $13 million every month to subsidise the country’s public transport system through Zupco buses.

In total revenue generated from excise duty amounted to $1,4 billion with air time and beer contributing $88 million and $61 million respectively.

Cumulatively revenue generated for the seven months to July amounted to $6,46 billion which is $1 billion more than the budgeted $5,39 billion.

Apart from fuel, the country is also surviving on revenue generated through the sale of goods and services from both the domestic market and from imports.

Value added tax (VAT) on the sale of domestic goods amounted to $1,1 billion while VAT from imported goods and service amounted to $720 million. Much of the increase was however driven by inflationary pressures with inflation reaching 175,6 percent at the last official count in June 2019 and an estimated 353 in September 2019.

The increase in VAT on imports and customs duty reflects shortages of both local raw materials and finished products currently being experienced in the country.

The intermediate money transfer tax also contributed a significant portion $848 million during the period under review.

Minister Mthuli Ncube recently said the 2 percent Intermediated Money Transfer Tax on transactions will continue for much longer as it covers for tax defaulters.

There are, however, growing calls by business leaders to scrap the tax that they claim is increasing the cost of doing business.

Taxes from individuals amounted to $837 million while companies only contributed $643 million which analysts said reflects structural issues that currently exist in the economy.

Taxes should largely come from
corporate taxes, employment taxes and investment taxes and less from transactional or consumptive taxes, an analyst from Trigrams Investment, Walter Mandeya, told Business Weekly in an interview.

He said in the United States, less than 8 percent is generated from excise taxes but mainly to discourage consumption of the taxed product which could be the case in Zimbabwe as the country go through austerity measures under the Transitional Stabilisation Programme.

“Such a tax structure encourages formalisation and growth of companies which in turn increases employment and investment activity. Transactional or consumptive taxes on the other hand encourage speculative behaviour and discourages risk taking on long-term projects.

“By and large, fiscal measures are taken to give long term planning guidelines and are never meant to address short-term shocks in the system. That is done through monetary policies. It is very difficult to see how both inflation and the exchange rate can be brought under control when the fiscal policies are short-term in nature and do not encourage growth of the tax base,” said Mandeya.

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