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THE economy is showing signs of recovery with revenue collection increasing in the first half of the year but analysts say government cannot pop champagne bottles yet.
In his mid-term Fiscal Policy Review on Wednesday Finance minister Tendai Biti said monthly revenue collection was averaging US$140 million and the country was on course to surpass the target for the year by US$300 million.
The 2010 budget was premised on revenue collections of US$1,4 billion.
Biti said revenue for 2010 is projected to increase to US$1,75 billion, mostly stemming from increased Value Added Tax (Vat) and Pay As You Earn (Paye) collections reflecting the improved economic activity.
Whereas customs duty and Vat collections on imports accounted for two thirds of revenue during the first four months of 2009, taxes on income and profits have rebounded as economic recovery began to take root.
Biti added that domestic tax resources now account for two thirds of total revenue.
Analysts say the increase in the contribution of direct taxes shows the economy was on the re-bound.
“An increase in direct taxes shows that there is some production taking place and we are slowly moving from a nation of consumers to a nation of producers,” said Witness Chinyama, head of research at Kingdom Financial Holdings Limited.
Notwithstanding the increase in tax revenue collections, the fiscal position remains fragile as the US$810 million vote of credit is not performing well.
Of the projected amount US$207 million had been received from cooperating partners.
If funds do not trickle in from the vote of credit, it means that the US$2,25 billion expenditures for the year won’t be adequately covered.
The business-as-usual approach, Biti said, has to be discarded to move the economy forward.
In the midst of a constrained fiscal space as recurrent expenditures chew up most of the revenue collected, Biti said the economy would grow by 5,4% this year, a figure analysts say is unattainable.
“How can we have 5, 4% growth when there are power cuts,” asked John Robertson, an economic commentator.
“How do you get some help when you don’t change the policies that caused the difficulties?”
There were no cheers for the mining sector after Biti proposed new tax measures for chrome miners and an increase in royalties for precious minerals that would put an extra burden on the sector.
The mining industry is capital intensive and has a long gestation period.
Currently government is levying 15% corporate tax on net profit generated by miners and royalties ranging from 2% for base metals and 10% for diamonds.
Biti proposed 50 basis points increase on royalties for minerals saying revenue inflows coming from the sector were unacceptable.
This would be an extra burden on the sector with some players’ owed money in excess of US$30 million by the central bank for gold delivered as far back as three years ago.
Victor Gapare, the Chamber of Mines president told Standardbusiness that Biti should not have been surprised by the low contribution of the sector in terms of revenue because it was under capitalised and some players were not operating.
“Bindura Nickel Corporation is not operating its four mines, Zim Alloys is not working and SMM is not working so where are you expecting to get the revenue,” Gapare said.
“What we have lost is more than what these guys (operating mines) are producing.”
Gapare said mining is capital intensive and requires a huge funding outlay of between US$3 billion and US$5 billion to recapitalise over three to five years.
The tourism industry lost its immunity from customs duty after Biti proposed the withdrawal of Statutory Instrument 46 that waived duty on imported vehicles used by the tourism industry.
Statutory Instrument 46 of 2009 provides the terms and conditions under which the Zimbabwe Revenue Authority (Zimra) may grant suspension of duty on specified types of motor vehicles for the tourism industry.
The reprieve was granted to the industry last year to revive the tired tourism product.
The duty free waiver came alongside the suspension of duty on capital goods used for the industry.
Givemore Chidzidzi, Zimbabwe Tourism Authority chief operating officer said the move would affect investor confidence in the sector as the authority was using the waiver as a carrot to lure investors.
The tourism sector can have the quickest turnaround ahead of other sectors of the economy, analysts have said.
Biti read the riot act on banks for a mismatch in lending and deposit rates threatening to invoke a statutory instrument if moral suasion does not work.
But he admitted that the sector had heeded the call to lend out money as evidenced by high loan-to-deposit ratios.
Yet the sector is susceptible to systemic risks in the absence of a lender of last resort amid concern that reforms at the central bank are taking place at a snail’s pace.
Biti adjusted the tax free threshold for salaries to US$175 from US$160 but the Zimbabwe Congress of Trade Unions (ZCTU) said the adjustment remains a far cry from what the workers were expecting.
“For an ordinary worker to live some form of a dignified life he/she needs to take home at least US$500 after tax. Currently the average minimum wage is US$165 meaning that the majority of the country’s workforce is living in dire poverty,” the ZCTU said in a statement.
“To further subject such an individual to income tax given the fact that they are barely making ends meet is cruel.”
“Corporate tax stands at 25% while an individual is taxed at a punitive maximum of 35%.
“Companies are taxed on the profits they would have made while workers are taxed on gross earnings.
“Companies earn, spend and then get taxed.
“Workers earn, are taxed and then only spend the little that remains,” the ZCTU said.
BY NDAMU SANDU
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