Industry calls for stimulus to pursue industrialisation
The manufacturing sector has said although the National Development Strategy ( NDS1) identified priority value chains to be developed, there are deep and embedded challenges that require stimulation to kick-start the process that should be addressed in the 2022 national budget.
NDS1 is a five-year development strategy aimed at realising the country’s Vision 2030, while simultaneously addressing the global aspirations of the Sustainable Development Goals ( SDGs) and Africa Agenda 2063.
The five-year economic management master plan through to year 2025 has a strong focus on building, expanding and restoring infrastructure.
According to draft 2022 budget statement issues from Industry compiled by the Confederation of Zimbabwe Industries ( CZI), the sector said the 2022 Budget should begin to commit resources to industrialisation, specifically by coming up with a resource envelope, which value chain players can tap into to pursue industrialisation.
“Mechanisms can be put in place to ensure that the resources are accessible only for ring-fenced uses, with limited possibilities of diversion,” CZI said in the draft document.
The Government last year availed the $18 billion Covid-19 stimulus and rescue package of which about 72 percent was meant for reviving production and business while 28 percent was for further upgrades of health services. However, it emerged that businesses were finding it difficult to access the resources under the facility from the banking sector.
Industry is also of the view that the budget should stimulate exports, as the export receipts are now playing a central role in the economy.
“Efforts should be more on export promotion by minimising taxation of exports and the current export tax regime needs to be reviewed with a view to eliminating and reducing export taxes,” reads part of the draft submissions.
The manufacturing sector noted that for instance exporters pay up to 45 percent cumulatively in taxes and while the tax incentives that have been introduced are welcome, the export surrender requirements need to be reviewed downwards, especially in the face of exchange rate distortions, which are threatening the viability of exporting manufacturing firms.
The sector highlighted that the Government should through the 2022 National Budget boost aggregate demand in the economy.
“Industry needs a spending population to thrive; hence the 2022 National Budget should prioritise increasing the spending power of the population.
“In addition to the general need to review upwards civil servants salaries, widening the PAYE tax bands and increasing the tax-free threshold will help create more disposable income for the workers,” CZI said.
It added that prioritising social safety nets will also help ensure that the vulnerable population can at least afford some basic needs, which industry would help meet.
On the Intermediated Money Transfer tax ( IMTT), industry noted that the two percent IMTT is not an income tax but is actually a transaction tax and since it is now applied to all transactions, even on formal businesses that also pay corporate tax, the 2022 should make the IMTT tax deductible just like other transaction taxes.
The industry added that growing the tax base can actually reduce tax revenue due to reduction in compliance.
As a result, the 2022 National Budget should start laying the foundation for increasing the tax base and more incentives for ensuring that business opportunities emerge which informal sector and can exploit, but with
formalisation being the condition can see the expansion of the tax base.
“Zimbabwe tax statutes are old and have evolved over the years into a very complex and at times contradictory tax code.
“This makes tax compliance difficult and complex for business.
“A friendly and conducive tax regime will ensure that all entities operating outside the tax system and the informal sector become part of the country’s tax system,” said CZI in the submissions.
CZI indicated that the budget should prioritise key enablers such as infrastructure development for production and distribution of inputs and finished products to markets.
“The capital budget should try to ensure that resources have a significant impact on the ground by financing specific infrastructure projects to completion rather than spreading resources thinly on the ground to result in infrastructure projects pending for decades,” the industry representative body said.
Industry noted that it is critical for the 2022 National Budget to set a clear message on how the country will start to re-engage on debt overhang resolution so that economic progress will not be hamstrung.
It said the country and businesses are facing challenges in getting access to international credit lines due to the huge external debt.
Industry also highlighted that the government should standardise the surrender requirements as currently, RBZ is operating standardised foreign currency surrender requirements, which means that exporters of commodities, such as minerals and tobacco, where markets are already set up, face the same surrender requirements as manufacturing sector firms.
“However, market penetration for manufacturing products is a costly exercise, which requires a lot of care in sustaining, hence is a costly exercise.”
CZI said the manufacturing sector firms spent a significant amount of resources each year to look for markets as well as to build the necessary relationships, which commodity exporters do not face.
“Thus, the 40 percent surrender requirements reduce viability for the manufacturing sector, especially given the exchange rate distortions in the market. Given that manufacturing sector firms are not allowed to participate at the foreign currency auction, the surrendered portion of the exports makes it difficult for the remaining 60 percent to unlock the value needed to remain viable in the export market,” CZI said.
It recommended that the surrender requirement for the manufacturing sector be reduced to 20 percent, in addition, a value based system can be employed, where the surrender levels are adjusted depending on volumes exported, rather than a blanket approach.
The Industry said the 2022 National Budget should also harmonise the Transfer Price and excess management fees legislations as there is a duplication of the two legislations and should make all fines collected by various government entities go into a consolidated revenue fund and the enforcing agency e financed from the budget.