Economists Warn Zimbabwe Will Lose Revenue If Full Re-dollarisation Is Adopted

10 months agoFri, 20 Jan 2023 14:18:41 GMT
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Economists Warn Zimbabwe Will Lose Revenue If Full Re-dollarisation Is Adopted

Economic specialists have warned of an increased risk of major revenue loss due to the growing use of the U.S. dollars as the Zimbabwean economy moves towards full “re-dollarisation”.

According to economics professor Gift Mugano, the trends in the re-dollarisation have “deepened” as domestic sales in US dollars are now close to 80%, The Herald reported.

With the bulk of the transactions reportedly being in cash, they are seen as favouring tax evasion. 

Prof Mugano claims that since most transactions are cash-based, re-dollarisation would be “detrimental” to the government’s efforts to collect taxes as a result of the high level of economic informality. He told Business Weekly in an interview:

The risk comes with the potential loss of fiscal revenue on the backdrop of informalisation of the U.S. dollar sales.

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A snap survey I did shows that companies are facing exchange rate loss of 15 – 17 percent on the back of the 2 percent IMTT, bank charges and 20 percent export retention. The losses emanating from export retention, in particular, are arising from the existing disparities between the official exchange rate and black market rates. 

Based on this observation, the temptation is very high for businesses that collect cash not to deposit it in the banks thereby narrowing the tax base. This is why you hear about thousands of dollars being raided by robbers at business premises.

According to Mugano the policy matrix of the 20% domestic export retention and the 2% IMTT “does more harm than good and must be scrapped.”

He urged technocrats at the ministry of finance and the central bank to conduct an academic study on the benefits and drawbacks of the 2 per cent IMTT and the 20 per cent export retention.

Carlos Tadya, an economist from Harare, agreed with Mugano and said the business is already overtaxed and the transition to re-dollarisation opens up opportunities for tax avoidance.

The Minister of Finance and Economic Development, Professor Mthuli Ncube, issued a warning last year that the re-dollarization of the economy and the high level of informality would reduce the tax base because the majority of transactions were “going underground where the majority of activities are cash-based.”

The government approved the usage of foreign currency for domestic transactions in March 2020.

Last year, the Government enacted legislation to entrench the multi-currency system, which makes both the United States and Zimbabwe dollars legal tender for all local transactions until 2025.

The majority of people and businesses prefer using foreign currency over the Zimbabwe Dollar as the latter has been depreciating at a quicker rate.

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