The recent public notice by the Zimbabwe Revenue Authority (Zimra) on the payment of domestic taxes in foreign currency is nothing short of a tacit admission by government that de-dollarisation has failed.
The affected domestic taxes include Pay-As-You-Earn (PAYE), value-added tax (VAT), corporate tax, capital gains tax (CGT) and mining royalties. The notice adds to the promulgated Statutory Instrument (SI) 252A of 2018, which provides for the payment of customs and excise duty for selected goods in foreign currencies other than the local Zimbabwean dollar.
The list of the selected goods is quite extensive and includes motor vehicles, leather products, cigarettes and a host of agricultural products, among others. The notice by Zimra came in the same week that the Monetary Policy Committee (MPC) indexed minimum capital requirements for local banks in United States dollars.
It also follows the Supreme Court of Zimbabwe’s landmark ruling which declared that all debts incurred in United States dollars on or before February 22, 2019 are payable in the local currency at the rate of 1:1.
If the current interbank rate is used, the ruling means that the taxman will now be paid less than US$261 million for tax arrears amounting to over US$4,5 billion as of December 2018. The ruling also means that the government will in effect pay about US$550 million for domestic debts that amounted to over US$9,5 billion in December 2018.
The court ruling clears any confusion that may arise with US dollar debts that will be incurred in future and implicitly lays the foundation for efforts to re-dollarise the economy directly or indirectly via “foreign currency trading exemptions”.
Beyond the Zimra notice, the market was made to believe that SI 142 of 2019, which banned trading in foreign currency, was the law. Under Section 2 of SI 142 of 2019, it is stated that the British pound, Euro, US dollar, South African rand, Botswana pula and any other foreign currency whatsoever, shall no longer be legal tender alongside the Zimbabwean dollar in any transactions in this country.
The section further says, accordingly, the Zimbabwean dollar shall, with effect from the 24th June, 2019, be the sole legal tender in Zimbabwe in all transactions. However, the Zimra notice means that producers can now freely trade either in local currency, foreign currencies or both provided they pay the government in the currency of trading.
The notice further provides the account numbers for onward tax remittances, implying that taxpayers will simply need to deposit what is due to the taxman without any questions being asked.
