Zimbabwe has introduced a raft of new tax measures, including a 5% levy on imported dairy products, a US$50 levy on all new mobile phones, and an increase in sin taxes on tobacco as well as energy drinks. This comes as Finance Minister Mthuli Ncube is seeking new revenue streams as he nearly doubled the country’s proposed spending in its annual budget this week.
Zimbabweans have long complained that they are already heavily taxed, while their disposable incomes are shrinking. Labour unions also complain that salaries and wages in Zimbabwe lag those of regional peers, even as continued dollarisation of the economy and weakness of the local currency drive up the cost of living. However, Ncube on Thursday tabled a raft of tax measures to boost government coffers in his 2022 budget statement.
Some of the measures – including a 5% levy on dairy product imports – have been criticized for being protectionist against the backdrop of the coming into effect of the Africa Free Continental Trade Area (AfCFTA). Ncube insisted that the 5% tax on dairy imports was meant to “improve performance in the dairy value chain” with the funds meant for “re-capitalizing the Dairy Revitalisation Fund, targeted at growth and development” of the dairy sector.
Zimbabwe has also hiked sin taxes, with the excise duty on cigarettes going up from 20% + US$5.00 per 1 000 cigarettes to 25% + US$5.00. A flat excise duty on energy drinks at a rate of US$0.05/litre has also been introduced in the 2022 budget.
“Additional funds generated from the review of excise duty on cigarettes and energy drinks will be ring-fenced and appropriated from the Consolidated Revenue Fund, towards treatment and support of cancer, diabetes and hypertension patients through the Non-Communicable Diseases Fund,” Ncube said.
Cellphones
Other revenue enhancement measures include a new $50 levy on all new smartphones used in Zimbabwe. This is in addition to a 25% customs duty on imported handsets. Ncube said that Zimbabweans have been avoiding this levy through smuggling smartphones into the country.
Now this is the real shocker. Before even looking at what that entails, the fact that this is where the minds at the finance ministry drifted to says volumes. One colleague used the adjective ‘evil’ when talking about this move. I’m inclined to agree that it is a rather appropriate descriptor.
“Whereas imported cellular telephone handsets attract modest customs duty of 25%, the funds released, however, point to evasion of the customs duty due to the nature of the items which can easily be concealed,” he said. The Zimbabwean government will now require mobile network operators – including Econet Wireless and NetOne – to collect the $50 levy on each smartphone “prior to registration”.
We just talked about the ridiculous 2% IMTT. Well, compared to the $50 duty, the 2% is the most reasonable tax in the world. The $50 does not take into account the price of the phone being registered. You could buy a $50 phone and the government would still want it’s $50 cut making for a 100% tax. If you got a bargain for a budget android phone for less than $50, you would pay more in tax than you did for the phone. Ridiculous.
One wonders if they thought this through.
The wording in the budget does not make it clear how this would all work in practice. I imagine it would just be that mobile network operators will have to prevent devices that haven’t been used on their network before from working. Econet, NetOne, and Telecel can tell which device you are using and so it shouldn’t be hard to comply with the new directive.
When you insert an Econet SIM card in your phone, the phone has to communicate with them so that they know which bands it supports, whether it supports 3G, 4G, or 5G, and serve it accordingly. They can get the IMEI, serial number, and device manufacturer this way. So, they could just maintain a database of the devices on their network, something they probably already do.
What this means is that when a device that has never been on their network is detected, they simply withhold service until the user proves they paid duty for the device. For this to work, the mobile network operators would have to share device information in a central database. This is so that if it’s just a case of the user switching sim cards, the user is not denied service.
Apart from these measures, withholding tax for firms doing business with unregistered companies has been increased from 10% to 30%. Zimbabwean banks have also been mandated to “deduct mineral royalties at source on exports” of precious stones, precious metals, base metals, industrial metals, coal-bed methane, and coal.
In spite of hiking and introducing new consumer and business taxes, Zimbabwe’s treasury chief sought to provide some relief to Zimbabwean employees through tax-free adjustments as a measure aimed at boosting “aggregate demand for goods and services” in the economy.
The tax-free threshold has been raised, while the tax-free threshold on foreign currency income has also been bumped up from $70 to $100, with effect from the beginning of next year.
Zimbabwe expects the economy to grow by 5.5% in 2022, boosted by strong growth in manufacturing, mining, construction, and agriculture. Lafarge Zimbabwe has already said that the construction sector is notching up growth while agricultural productivity and manufacturing, despite suffering from electricity outages and forex shortages, have also exhibited growth.
The Zimbabwe Congress of Trade Unions has started to worry over power outages, highlighting that the massive power deficiencies experienced by Zimbabwe are “affecting the industry and have the potential to threaten job securities”, hence Treasury should have prioritized electricity generation and power imports.
