BY MTHANDAZO NYONI
THE Zimbabwe Banks and Allied Workers Union (Zibawu) has urged Finance minister Mthuli Ncube to raise the income tax free threshold in both foreign and local currencies in line with inflation and currency depreciation trends.
Government’s tax free threshold is up to $25 000 and US$100 for those earning wages in foreign currency.
In a letter dated May 31, 2022, Zibawu said current tax brackets negated wage increases as it means any upward review on wages will be taxed more, hence, the need for a review.
“We further note that due to currency depreciation coupled with salary increases in line with inflation, employees now invariably fall in higher tax brackets thereby lowering disposable income,” the letter reads in part.
“The general trend is such that most workers will fall in the high tax brackets, which is not reflective of real incomes if regard is taken to United States dollar values.
“The high inflation and currency depreciation also represents a significant indirect tax on workers’ salaries.”
The country’s year-on-year inflation reverted back to three figures for the first time since June last year, after a sharp spike to 131,7% in May, from 96,4% in April as prices continue to soar.
Last month, the Consumer Council of Zimbabwe announced that a family of five required $120 000 a month to survive, up from $98 000 in April as the value of the local currency tumbles and prices of basics and services skyrocket.
“It will be prudent to increase the minimum taxable income to a figure above poverty datum line (PDL), say US$300 (ZWL92 556, forex auction rate). In 2013, the tax free component was US$350,” Zibawu said.
“This addresses two main policy problems.
“It alleviates a big portion of the working poor whose salaries are below the PDL and facing numerous hardships.
“This is good for social progress.
“Furthermore, it will increase domestic aggregate demand and help in economic recovery.
“It is our considered view that reduced revenue will still be recovered through either taxes or increased economic activities.”
In addition to that, Zibawu said there is a general increase in foreign currency prices even on the domestic market possibly induced by global geopolitics which is further worsening the plight of workers remunerated in Zimbabwe dollar.
“It is on this basis that we request that you revise the rates of income tax by considering the following proposals,” it added.
“That tax brackets in both US dollars and Zimbabwe dollars are widened in line with inflation and currency depreciation.
“Where employees are paid in dual currencies, willing buyer willing seller exchange rate can be used to determine applicable tax in Zimbabwe dollar,” said the union that represents the interests of workers in the finance sector.
Zibawu said the aim was to ensure just and fair tax burdens to the employees and the reduction of tax evasion schemes.
President Emmerson Mnangagwa, who re-introduced the Zimbabwe dollar in 2019, has been struggling to steady the local currency and has accused businesses of sabotaging him.
Early last month, he introduced a raft of economic measures to control the exchange rate and arrest the economic challenges afflicting the country.
Some of the measures included a freeze on lending by banks to stop free-fall of the local currency, allegedly at the hands of illegal forex dealers aided by banks, according to the central bank’s Financial Intelligence Unit.
Government was forced to reverse the measures following an outcry by businesses.