The 2021 National Budget: Tax relief didn’t go far enough

The government generates income for its activities, in large part, from taxes. During normal years this was burdensome because we rarely ever got to see what the hard-earned dollars we shell out contributed to.

This year, however, has been like no other in recent memory. The world has been in the shadow of the coronavirus pandemic and it seems we will enter 2021 with it well. The challenges that 2020 presented are going to follow us, in one way or another into next year.

Now, with this all in mind, the hope was that we would see sweeping tax relief that showed that the government recognised just how bad things are for Zimbabweans.

This doesn’t appear to be the case with what we heard from Finance Minister Mthuli Ncube in his National Budget Statement.

The 2% Tax

The first thing to discuss is the Intermediary Money Transfer Tax more commonly know as 2% Tax. The government launched this fiscal measure in 2018 to address the tax shortfalls that arose because of the largely informal nature of the Zimbabwean Economy. As well as to wring out as much money as they possibly could from Zimbabweans through every transaction.

In yesterday’s National Budget Statement, the value of transactions the tax is levied on was raised from ZWL$300 to ZWL$500. Given that there is a pandemic and the buying power Zimbabweans have is dwindling, the tax should have been raised even further or suspended altogether.

But it doesn’t look like the governement is going to be giving this one up…

Income Tax

Much like the 2% Tax, there was very little in the way of relief here too. The tax-free threshold was raised from ZWL$5 000 (approx. US$61.12) to ZWL$10 000 (approx. US$122.24).

To put that in perspective, Kenya, earlier this year when the pandemic was at its worst, raised the tax-free threshold to KES24 000 (US$218.13). Value Added Tax (VAT) was reduced from 16% to 14%, and the Kenyan government also waived bank fees for individuals moving money between their bank account and mobile money wallet. All of this (and more) was done to cushion the citizens who are undoubtedly going to have an uphill task of trying to survive during the pandemic.

This isn’t of course to draw cheap comparisons between Kenya and Zimbabwe. The situations are completely different but the point I am trying to make here is that months ago Kenya saw that the pandemic was going to upend everything. They prepared in March to offer substantial relief to their citizens knowing that what was coming ahead was nothing they have ever encountered before.

We on the other hand are not seeing anything that resembles any sort of awareness that Zimbabweans are struggling. An example of this is that, according to ZimStat, a family of five now needs around ZWL$18 750 a month to stay above the poverty line.

According to The Herald, after the recent civil servant salary increase, the basic pay for the least paid civil servant is ZWL$14 528. This means those individuals are still well above the tax-free zone.

They do however get a tax free COVID-19 allowance, but with the cost of living continuously on the up, it doesn’t do much to address their needs.

Is greater Tax relief asking for a little too much?

I don’t think it is. The government needs to think of its people first and that means offering them the relief they need in times of crisis. Whatever shortfall in revenue that arises is down to the government to make a plan for. A starting point would be to cut back any unnecessary govt spending.