BY MTHANDAZO NYONI
The government should expeditiously review the minimum tax threshold in line with monetary developments in the economy to cushion low-income earners against rising prices of basic goods, the Zimbabwe Coalition on Debt and Development (Zimcodd) has said.
Zimbabweans celebrated a review of the free tax threshold from US$300 to US$350 early this year, but the gains were, shortlived following the removal of the 1:1 exchange rate between the RTGS dollar and the United States dollar.
Following the policy pronouncement, people’s disposable incomes were eroded excessively by the failure to review the minimum tax threshold.
Using the central bank rate of US$/RTGS at US$1: RTGS 3.2 as of April 25 2019, Zimcodd noted that monthly incomes of US$110 or the RTGS equivalent were now being subjected to taxation.
“This defeats the purpose of reviewing the free tax threshold from US$300 to US$350 in the 2019 fiscal policy.
“This is incomparable to South Africa’s monthly minimum tax threshold of US$450,” Zimcodd said.
“Fundamentally, the discord between the monetary and fiscal policies signifies policy inconsistency and incoherence, whose implications on the ordinary citizens undermine the very essence of having a government that serves the interest of its citizens.”
Zimcodd said the pain associated with the “austerity for prosperity” mantra seemed to be excessively unbearable beyond what Finance minister Mthuli Ncube envisaged.
“If no relief is sought immediately, the pain will persist into the medium and long term, putting the country in a worse off position,” the coalition said.
“The government should expeditiously review the minimum tax threshold in line with the monetary developments brought by the monetary policy of 2019.”
Basically, the initial RTGS tax-free threshold should be set by multiplying the US$ amount by the existing exchange rate, Zimcodd said.
“The policy review should be issued through a Government Gazette, which provides for tax refunds to individuals whose incomes were taxed from the time the monetary policy took effect,” it added.
“The fact that the devaluation of the RTGS dollar was aimed at addressing the exchange rate challenges that arose from the black market rates and multi-tier pricing, its net effect on the economy is devastating to economic agents and consumers, people with fixed incomes and essentially all businesses that rely on imports.”
Zimcodd noted that imported fuel, food and raw materials had become more expensive.
“Zimbabweans are caught in between a rock and hard surface as they entirely rely on imports, implying an increase in cost-push inflation.
“It is very unfortunate that the final consumer becomes the greatest loser in this economic matrix,” the organisation said.
“With worsening macroeconomic performance, the rise in inflation is not matched by a corresponding increase in aggregate demand.
“It is very unfortunate that devaluation was not matched by an increase in real wages and salaries; worse still, there was no deliberate decision to cushion workers against devaluation and the corresponding rise in inflation.”
Zimcodd said an Act of Parliament should be enacted to make the synchronisation of monetary and fiscal policies mandatory to safeguard the interests of Zimbabweans and the economy.
“This will put an end to the prevailing macroeconomic distortions fuelled by the policy inconsistencies and incoherence,” it said.