Investors on the Zimbabwe Stock Exchange will now pay for the sins of speculators following an upward review of withholding tax from the previous 1 percent, Finance and Economic Development Minister Mthuli Ncube has said.
According to Mthuli in his 2022 National Budget Statement presented to Parliament yesterday, the upward review is meant to curtail “speculative tendencies” on the local bourse.
“I propose to increase the withholding tax to 1,5 percent on shares that are held for a minimum period of six months. Shares held for a period of less than six months will be subject to a withholding tax of 2 percent,” reads part of the Budget Statement.
The move, however, comes at a time there has been no love lost between authorities and the equities market.
For the last three or so years, and some time back, the market has been accused of engaging in all sorts of malpractices.
The Government last year suspended mobile money transactions as well as trading on the local bourse saying the platforms were contributing to the collapse of the local currency.
At the time, the Government said it was “in possession of impeccable evidence which constitutes a prima facie case whereby the phone-based mobile money systems are conspiring with the help of the Zimbabwe Stock Exchange either deliberately or inadvertently in illicit activities that are sabotaging the economy”
Additionally, the Government also accused the ZSE of harbouring “fake counters” that were also using the Old Mutual Implied Exchange Rate (OMIR) in the conduct of their business promoting the existence of many exchange rates in the economy.
During the same debacle Old Mutual, PPC Zimbabwe and Seed Co International’s fungibility were also suspended while Seed Co International was later delisted from the bourse and subsequently listed its shares on the USD denominated Victoria Falls Stock Exchange (VFEX).
Meanwhile, shares of PPC and Old Mutual remain suspended from trading on the bourse.
This was not the first time trades were suspended on the local bourse. In 2008, at the height of hyperinflation, the central bank — the Reserve Bank of Zimbabwe (RBZ) suspended fungibility of dual-listed stocks, with the same view to stem exchange rate depreciation as this was believed to distort the real value of local currency through speculative purchases.
Recently, during a no-holds-barred panel discussion at the inaugural Capital Markets Awards night hosted by Business Weekly and Financial Markets Indaba in Harare, experts in the capital markets highlighted that policymakers can come up with measures that hurt the sector, which in other countries functions as a barometer for economic performance.
Regulator — Securities and Exchange Commission of Zimbabwe (SecZim) chief executive officer Tafadzwa Chinamo highlighted the need for all capital markets players to work together and raise a “voice” that cannot be ignored in the economy and show their relevance to the economic transformation agenda.
“The fact that a market can be closed for a month and life goes on in the country means we have not made enough information about our importance in this economy known.
“We need to have a voice that can be influential to policyholders. We have not shown our importance in this economy, which is a problem,” he said.
But it seems, the market remains a punching bag even from those who must know better like Minister Ncube.
Following the latest increase in withholding tax, the ZSE has now become one of the most expensive equities market in the world.
After selling shares, investors will now have to pay 3,438 percent in various charges including the 1,5 percent or 2 percent withholding tax depending on the holding period. The cost of buying and selling is now 5,127 percent.
While this does not seem much in a high inflation environment, it is damaging when inflation slows.
The increase comes at a time stakeholders on the ZSE have been calling for a reduction in charges to levels that obtain on the VFEX where total charges amount to just 2,124 percent with no withholding tax charges.
As someone rightly pointed out, the decision to increase withholding tax is not very appealing to new investors especially those using online trading platforms and trying out the market for the first time.