The Zimbabwe Revenue Authority (Zimra) has just released its 2023 report, which shows how the decimation of the formal sector is hurting the government in the pocket.
Here are some of the key takeaways from the report.
VAT is Govt’s biggest source of income
VAT is the single largest source of government income, accounting for 29.13%, from 25.38% in 2022. VAT on imports contributed the most to VAT (52%), beating VAT on local sales. Individual tax is second at 18.7%, mostly unchanged from 18.8% in 2022.
Corporate tax: Formal economy’s loss
Company tax made up just 10.87% of taxes in 2023, down from 15.4% in 2022. In 2020, corporate tax made up 19.71%. The decline reflects the pressure that formal businesses currently face in the economy. According to Zimra, corporate tax has been “impacted by a growing informal sector that is controlling more than 60% of activities in the economy”.
Excise duty makes up 14.4% while customs duty is at 9.57%.
The 2% tax: Cash is king
In October 2018, Finance Minister Mthuli Ncube introduced the intermediated money transfer tax (IMTT), taking 2% off most electronic transactions. He said at the time that the tax was needed to tax the informal market. For a short while, despite outrage, it looked like it was working. In early 2020, the tax was giving the government 12% of its revenue. Now, this is down to just 4.56% from 9% in 2022, reflecting the decline in the formal economy and, according to Zimra, “more usage of cash when transacting”.
Businesses see the tax as a needless extra tax that is driving costs.
Mining royalties
Mines pay a percentage of their revenue as royalties. For example, platinum mines pay 7%, while gold and lithium producers currently pay 5%. Royalties contributed 2.93% in 2023, unchanged from 2022. This is despite lower metal prices hitting the earnings of big platinum and lithium mines. The royalties’ contribution may have been sustained by the entry of new operations in 2023, mostly in lithium, as well as firmer gold prices. Apart from royalties, mines also pay corporate tax as well as other mining fees to government and local councils. Mineral exports, of US$5.2 billion in 2023, make up 78% of Zimbabwe’s export earnings. – (NewZWire)
