Govt plans to tax in forex conflicting

GOVERNMENT’S plans to start levying tax in hard currency for businesses charging goods and services in US dollars sends the wrong signal on the standing policy thrust and process to de-dollarise the economy, analysts have said. Eddie Cross, a member of the RBZ monetary policy committee said yesterday that the Government was taking the wrong policy decision to levy taxes in foreign currency as this would take the limited forex resources critically needed by business into the coffers of the Government. “I think it is a regressive step. We are supposed to be dedollarising and the Government is taking us in the opposite direction, that is not welcome at all. I think that is a poor decision. Government is succumbing to the temptation to raise revenue in hard currency. “This is not the right way to do it. The US dollar should go to the auction market and find its way to the productive sectors and use it for critical imports, otherwise we have no control over what they use the money for. “We do not want the money to buy luxury cars for ministers and staff like that, what we should be concentrating on is getting the productive sector moving,” Cross said. Other observers have, however, said US dollar taxes are warranted as they give a true reflection on the value of transactions. They said the tax regime has to be fair in making sure that those opting to trade in forex also pay the same taxes as everyone else. The Government took the decision to de-dollarise last year amid crippling shortage of US dollars, which had been the dominant transacting unit since adoption of the multi-currency regime in February 2009. As such, the process to de-dollarise the economy got underway in earnest last year after the Reserve Bank of Zimbabwe in February directed that all bank balances be converted to local currency, which was also immediately floated on the interbank at 2,5 to 1 against the US dollar. Later in June last year, Finance and Economic Development Minister Mthuli Ncube promulgated Statutory Instrument (SI) 142, which effectively and legally cemented the transition from US dollar dominated multi-currency, to a Zimbabwe dollar monetary regime. Minister Ncube told Senators while presenting his 2020 Mid-Term Budget Review on Wednesday this week that his ministry was working on the legal instrument to levy taxes on businesses in the currency of trade, as more economic agents have increasingly opted to quote in US dollars. Minister Ncube said the proposed law would be presented before Parliament next week. “We are dealing with that. That will be contained in the Finance Bill, which we are bringing to Parliament. The Bill will compel retailers and traders to pay taxes in currencies that they would have priced goods,” said Prof Ncube. The Treasury Chief was responding to Harare Metropolitan Senator Omega Hungwe who had asked what Government was doing to deal with such traders. Senator Hungwe said some retailers were issuing receipts reflecting Zimbabwean dollar on a transaction that would have been paid for in United States dollars. The Zimbabwe Revenue Authority (Zimra) said in February this year it had come to the attention of the Commissioner-General of the authority that some businesses were trading in both Zimbabwe dollars and foreign currency. “Following this observation, Zimra has found it necessary to clarify that in accordance with Section 4A of the Finance Act (Chapter 23:04) and Section 38 of the Value Added Tax Chapter 23:12) these businesses should remit taxes in foreign currency,” Zimra said. The central bank, though, issued a statement in April allowing businesses to sell in foreign currency, but demanded for market players to indicate prices in both foreign and local currencies while insisting this did not signal a change in policy direction. The authorities have reaffirmed on several occasions that there is no going back on de-dollarisation, given the crunch foreign currency shortages, although a continually weakening Zimbabwe dollar has seen growing reversion to pricing using the greenback. This also comes as a leaked document has revealed Zimbabwe’s plans for a 5-year dedollarisation roadmap detailing how the economy will transition over the period. A fixed and dual exchange rate system will immediately be adopted. The US dollar will be permissible for settlement of local transactions over the 5-year period. Notably, the majority of transactions in the informal sector, which is estimated to constitute over 60 percent of the domestic economy, are done using US dollars while in instances where local currency is used, prices are indexed to the US dollar parallel market exchange rates.