BY FIDELITY MHLANGA
The government has been urged to roll out fiscal incentives to cushion companies reeling from the impact of the coronavirus outbreak that might cripple an already bleeding economy.
Local companies are choking from headwinds such as high inflation, currency volatility, declining output, low demand, foreign currency shortages and poor business operating climate.
Last week Zimbabwe went on a 21-day national lockdown as a way of mitigating the spread of coronavirus, which has left more than one million people infected across the globe.
To mitigate the effects of the coronavirus, also known Covid-19, the government said it was channelling the 2% tax on mobile transactions towards funding the fight against the pandemic and pledged to avail $200 million to vulnerable households.
Analysts, however, said companies remained exposed to the impact of the outbreak of the deadly disease.
“Yes, Zimbabwe can take a leaf and emulate Kenya, especially on tax holidays or cuts (especially on value-added tax) for the tourism, hospitality and transport sectors that will be worst affected by the impact of coronavirus due to cancellation of flights, travelling and the subsequent lockdown,” Victor Bhoroma, an economist, said.
A number of African countries have unveiled a raft of measures to ensure that their economies weather the storm in light of the pandemic.
Apart from reducing the income tax rate, announcing a tax relief to low income earners (earning up to US$240), a salary cut of 30% on ministers and effecting an 80% cut for the president and deputy, Kenyan President Uhuru Kenyatta reduced Vat from 16 to 14% as well as a turnover tax rate cut to 1% from 3% for micro, small and medium enterprises.
These were part of measures by Kenyatta to cushion citizens in the east African country from the impact of Covid-19.
Like Kenya, Zimbabwe is in a tight fiscal space, thus debt is not a viable option. However, tax cuts for corporates can help plug revenue gaps.
“It’s a tough call, but it may be necessary to save jobs and save companies from going bankrupt, especially for Victoria Falls, Kariba and Mutare, which have thousands of livelihoods dependent on tourism,” Bhoroma added.
“The tourism sector will take 10 months to recover according to the Tourism Business Council of Zimbabwe, while all major airlines are forecast to declare losses for 2020.”
The tourism and hospitality sector would be the hardest hit because of the unparalleled travel restrictions across the world.
The United Nations expects that international tourist arrivals will be down by 20% to 30% in 2020 when compared with 2019 figures.
One of Zimbabwe’s largest hospitality groups, African Sun, last week announced the temporary closure of its flagship hotels in response to the coronavirus pandemic.
Cresta Hotels also temporarily closed its five hotels, which are based in Harare, Bulawayo and Victoria Falls.
Henry Masasire, an economist, said it would be difficult for Zimbabwe’s economy to provide significant tax reliefs to companies because of the many challenges the country was facing.
“The situation is further exacerbated by the fact that the economy is still recovering from the effects of cyclone Idai and the poor 2018/2019 agriculture season which saw more than 4.7 million people in need of food assistance,” Masasire said.
“The bottom line is that we need external support, but looking at how these countries are struggling, I do not see us prevail.
“Yes, the private sector needs to step in, but that is assuming they had it easy all along.
“Although tax breaks would have helped (corporate tax as well as maybe even scrapping of the 2% mobile transactions tax for individuals), the fiscus may not afford such measures because the tax base had already shrunk over the years.”
As a percentage of the gross domestic product, Treasury’s package is very low compared to other countries which are offering upwards of 50% of GDP.
For instance, the United States availed a stimulus package of US$2 trillion for Covid-19.
African nations such Nigeria, Ghana, Rwanda and South Africa have offered huge stimulus packages.
Treasury said it would make sure that the Zimbabwe Revenue Authority wouldexpedite processes on refunds and requests for extension of the time period with which the tax is payable without accruing interest and penalties for companies that shall experience Covid-19-related cash flow challenges.
The government suspended tax on various goods and services related to testing, protection, sterilisation and other medical consumables.