FINANCE minister Herbert Murerwa yesterday adjusted the tax-free threshold from $7 million to $20 million a month after admitting inflation was eroding d
isposable incomes and affecting the livelihoods of millions of Zimbabweans.
But the adjustment fell far short of proposals from trade unions which had demanded that tax-free income should be pegged against the poverty datum line, currently at $60 million per month for a family of five.
The tax relief will become effective in September, when analysts project the poverty datum line to have escalated to $120 million, assuming that prices for the consumer basket increase by an average of $20 million per month as has become the pattern over the last five months.
“The present unfavourable macro-economic environment characterised by high inflation has reduced the relief accorded to individual taxpayers, especially those below or near the poverty datum line,” Murerwa said.
Murerwa said there was need for government to complement salary adjustments through regular reviews of the pay as you earn (PAYE) income brackets and tax-thresholds but insisted these had to be made after considering the revenue requirements for the fiscus.
Cumulating revenue collections for the half-year to June amounted to $76 trillion against a target of $58,2 trillion.
PAYE, together with value added tax (Vat) and corporate tax, contributed to this overperformance.
Cumulative collections for PAYE amounted to $16,9 trillion or 22,2% of total revenue, against a target of $9,9 trillion.
“This strong performance largely reflected higher wage and salary settlements against the background of the prevailing inflation environment,” Murerwa said.
Murerwa widened the tax bands to end at $54 million per month above which income would be taxed at a rate of 35%.
“This measure will release about $35 trillion to taxpayers, thereby enhancing their purchasing power,” Murerwa said.
He said inflation remained “our biggest challenge, affecting savings and investment, undermining day to day business activity, as well as creating price instability in the conduct of ordinary transactions”.
“It has also eroded the purchasing power of our domestic currency, adversely affecting the livelihood of the ordinary household as standards of living fall and basic social services become unaffordable,” Murerwa said.