Zim’s budget out­lines in­di­geni­sa­tion poli­cies

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW -

Min­is­ter gives clar­ity on many is­sues, but a lack of re­sources and the al­lo­ca­tion of funds come in for crit­i­cism

ZIM­BAB­WEAN Fi­nance Min­is­ter Patrick Chi­na­masa pre­sented the 2014 budget to par­lia­ment on De­cem­ber 19 2013. The budget es­ti­mates ex­pen­di­ture at $3.628bn, of which $3bn (73%) will cover the govern­ment’s pub­lic-sec­tor wage bill and the re­main­ing $492bn cap­i­tal ex­pen­di­ture.

The rev­enue tar­get is set at $4.12bn, of which $3.82bn will be fi­nanced through tax pro­ceeds and the re­main­der from div­i­dends from di­a­mond min­ing op­er­a­tions and pro­ceeds from in­vest­ment in property. To­tal im­ports are ex­pected to grow from $7.6bn in 2013 to $8.3bn in 2014, while ex­ports are ex­pected to in­crease from $2.8bn to $4.43bn. The growth rate for 2014 is set at 6.1%, with agri­cul­ture (9% growth), min­ing (11.4% growth) and con­struc­tion (11% growth) ex­pected to show the big­gest con­tri­bu­tion to growth per­for­mance.

The govern­ment recog­nises the im­por­tance of re-en­gag­ing with cred­i­tors for debt re­lief and se­cur­ing an en­dorsed staff mon­i­tor­ing pro­gramme with the In­ter­na­tional Mon­e­tary Fund (IMF) and re­newed its com­mit­ment to the “mul­ti­c­ur­rency” regime.

The min­is­ter ac­knowl­edged that a large num­ber of in­vestors have been seek­ing clar­i­fi­ca­tion re­gard­ing the coun­try’s in­di­geni­sa­tion and eco­nomic em­pow­er­ment reg­u­la­tions. He re­it­er­ated that in all sec­tors of the econ­omy the 51%/49% share­hold­ing struc­ture ap­plies. How­ever, where the en­ter­prise does not ben­e­fit from a nat­u­ral re­source or raw ma­te­rial de­rived from Zim­babwe, the 51% stake for Zim­bab­weans is not avail­able for free and the busi­ness part­ners in the in­vest­ment may make their own de­ci­sions on how and when, within the gazetted frame­work, the 51% con­tri­bu­tion is to be fi­nanced or achieved. It was also em­pha­sised the in­vestor is free to choose his Zim­bab­wean part­ner; only where this ar­range­ment has failed would the govern­ment in­ter­vene.

The De­part­men­tal Draft Bill for the Fi­nance Act 2013 pre­sented to Par­lia­ment on the same day as the budget pro­vides for tax re­lief in re­spect of in­di­geni­sa­tion trans­ac­tions. Pro­pos­als in­clude a tax de­duc­tion in re­spect of con­tri­bu­tions or do­na­tions by a tax­payer to a com­mu­nity share own­er­ship trust or scheme in terms of the In­di­geni­sa­tion and Em­pow­er­ment Act and in­ter­est payable by an indige­nous per­son on any loan ad­vanced to pur­chase shares in terms of an ap­proved in­di­geni­sa­tion im­ple­men­ta­tion plan. It is also pro­posed that amounts re­ceived by or ac­crued to a per­son form the sale or dis­posal of shares to an indige­nous per­son or a com­mu­nity share own­er­ship trust or scheme should be ex­empt from cap­i­tal gains tax.

Zim­babwe re­ceived $1.6bn in the form of re­mit­tances by Zim­bab­weans liv­ing abroad dur­ing the eleven months end­ing Novem­ber 2013. The govern­ment in­tends to de­velop and im­ple­ment a frame­work to fa­cil­i­tate ac­cess to this re­source, in­clud­ing fund­ing small-scale hy­dro-elec­tric schemes through the is­suance of di­as­pora bonds. In­vest­ment by the di­as­pora is also to be pro­moted through tax and im­port duty in­cen­tives for qual­i­fy­ing in­vest­ments in the man­u­fac­tur­ing and other cap­i­tal in­ten­sive in­dus­tries.

The min­is­ter also an­nounced the planned es­tab­lish­ment of spe­cial eco­nomic zones of­fer­ing trade in­cen­tives to stim­u­late busi­ness and job cre­ation. Fo­cus in­dus­tries in­clude agro-pro­cess­ing, di­a­mond ben­e­fi­ci­a­tion, gold value ad­di­tion, low car­bon man­u­fac­tur­ing, health­care, med­i­cal tech­nolo­gies, re­new­able en­ergy, waste man­age­ment and lo­gis­tics and port of en­try cor­ri­dors. The govern­ment is de­vel­op­ing the rel­e­vant reg­u­la­tory frame­work based on sim­i­lar ini­tia­tives by China, In­dia, South Korea, Malaysia, Sin­ga­pore and Dubai and will be re­quest­ing in­puts from stake­hold­ers in the pri­vate sec­tor.

The neg­a­tive im­pact on pro­duc­tive sec­tors of the in­ad­e­quate sup­ply and high cost of elec­tric­ity has ne­ces­si­tated the govern­ment to sup­port ini­tia­tives to im­prove elec­tric­ity sup­ply and re­duce the cost to the con­sumer. A VAT ex­emp­tion for elec­tric­ity im­ports and the re­leas­ing of funds for the main­te­nance and re­place­ment of aged equip­ment by the Zim­bab­wean Elec­tric­ity Trans­mis­sion and Dis­tri­bu­tion Com­pany are pro­posed.

The need for an ef­fi­cient and trans­par­ent li­cens­ing sys­tem in the al­lo­ca­tion of min­ing rights as a means of pro­mot­ing sus­tained min­eral ex­ploita­tion has been em­pha­sised. To re­in­force the pre­vi­ously in­tro­duced “use it or lose it” prin­ci­ple it is pro­posed that un­worked claims be for­feited to the govern­ment af­ter a pe­riod of three years. The ex­port of un­ben­e­fi­ci­ated min­er­als is to be fur­ther pe­nalised by the in­tro­duc­tion of an ex­port tax on un­ben­e­fi­ci­ated plat­inum and di­a­monds, while the sale of rough di­a­monds to lo­cal in­dus­try has been zero-rated for VAT pur­poses with ef­fect from Jan­uary 1 this year.

Cur­rently, the Zim­babwe Min­ing De­vel­op­ment Cor­po­ra­tion pays out div­i­dends to share­hold­ers at the dis­cre­tion of the board, which pro­vides no cer­tainty on the quan­tum of the div­i­dends that may be re­ceived by the govern­ment on an an­nual ba­sis. To en­sure a con­sis­tent flow of funds to the fis­cus, a rev­enue shar­ing for­mula of 10% on gross pro­ceeds of di­a­mond sales was pro­posed from Jan­uary 1 this year. The amount is to be with­held at source, af­ter con­clu­sion of each sale.

To in­cen­tivise small-scale gold pro­duc­ers to sell their pro­duce through the for­mal chan­nels, a re­duc­tion in roy­al­ties from 7% to 3% on gold pro­duc­ers whose out­put does not ex­ceed 0.5 kg per month has been pro­posed.

Since the in­cep­tion of the SADC Trade Pro­to­col in 2000, SA has no longer been of­fer­ing cus­toms duty pref­er­ences in terms of the Zim­babwe South Africa Bi­lat­eral Trade Agree­ment en­tered into in 1964. The min­is­ter pro­posed that the cur­rent cus­toms duty pref­er­ences avail­able to SA be sus­pended un­til the par­ties agree to re­cip­ro­cate the ap­pli­ca­tion of the agree­ment.

Fol­low­ing on the in­crease of the high­est mar­ginal tax rate to 45% on in­come ex­ceed­ing $10,000 in 2012, the rate was in­creased again to a flat tax of 50% on in­come ex­ceed­ing $20,000 from Jan­uary 1 in an at­tempt to ad­dress grow­ing in­come dis­par­ity be­tween rich and poor.

Lo­cal me­dia crit­i­cised the budget as not hav­ing enough re­sources to back up the planned ex­pen­di­ture and the al­lo­ca­tion of funds to the agri­cul­tural and min­ing sec­tors not en­abling the growth rates ex­pected from these in­dus­tries.

Celia Becker is an ex­ec­u­tive in the tax depart­ment at ENSafrica.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.