Biti's 2010 budget highlights
By Tony Hawkins
ZIMBABWE will cut the rate of corporate tax to 25 per cent from 30 per cent, but raised tax rates for the mining industry, according to a budget for 2010 announced by Finance Minister Tendai Biti on Wednesday.
Biti said that in the current year, corporate tax had brought in only 4 per cent of total revenue, but he hoped improved compliance as a result of the tax cut would increase that figure to 10 per cent.
He also announced a reduction in some investment allowances that would lead to increased revenue.Describing Zimbabwe as “a sleeping giant in a deep hole”, Biti said: “We are slowly getting out this hole” but this would require acceptance of a national vision by all, as well as resolution of the political problems facing the nation.
Although Zimbabwe had a number of large operating mines, revenue from mining tax was negligible, he said. He increased royalties on precious metals – gold and platinum – from 3 per cent to 3.5 per cent while also reducing the size of mineral exploration concessions from 65,000 hectares to 20,000 hectares and raising the levy payable during an exploration period.
To foster domestic processing of chrome ore, a new export tax of 15 percent was imposed on exports of unprocessed chrome.
The top rate of personal tax was cut to 35 percent from 37.5 percent while the basic threshold below which no tax is payable was raised slightly to $160 a month from $150 previously.
Biti also extended the suspension of duties on imported foodstuffs for a further six months until mid-2010, while reducing the duty on smaller imported motor vehicles to 25 percent from 40 percent. Excise duties on spirits were doubled to 40 percent from 20 percent.
After eleven years of declining output, he forecast GDP growth of 4.7 percent in 2009 accelerating to 7 per cent next year. He raised his 2009 growth forecast from 3.7 percent to 4.7 percent as a result of strong 10 percent growth in agriculture, 8 percent in manufacturing and 6.5 percent in tourism.
Mining growth, almost entirely due to gold, was only 2 percent. Gold output rose 14.6 per cent.
The banking sector had recovered strongly following dollarisation of the economy at the start of 2009 with total bank deposits more than doubling from $475m in April to just over $1bn at the end of October.
But Biti criticised banks for conservative lending policies, saying that bank loans of $501m reflected a loan-to-deposit ratio of just 50 percent, well below the 80 percent target that the government had set. He warned the banks that if they failed to increase lending the government would not hesitate to use its powers under the Banking Act.
He said because of dollarisation and fiscal consolidation, inflation was forecast to average minus 5.5 percent in 2009 compared with 231million per cent in July 2008 – the last month for which official inflation numbers were available during that year.
In 2010, inflation would turn positive again and was forecast to average 5.1 per cent. The minister said exports would fall 17 percent in 2009 to $1.02bn but gave no further balance-of-payments details.
In the ten months to October, government revenue was $685m or 87 percent of the budgeted target while spending fell short of budget at $641m.
The minister said revenue inflows had grown very rapidly in the first half of the year before levelling off at around $90million a month since July. Two thirds of revenue came from VAT and customs and excise taxes.
Biti said that 63 percent of government spending was on employment costs, 43 percent of that being public service wages. Capital spending was tiny at only 5 percent of the budget. Although he said such a high level of wage costs was unsustainable, he admitted that 2010 employment costs would still exceed 60 percent of total spending, excluding foreign aid.
In 2010, government revenue was forecast at $1.44bn (26 per cent of GDP) while expenditure was projected at $2.25 bn (40.5 per cent of GDP), leaving a budget deficit of 14.5 per cent of GDP or $810m, to be funded from foreign aid and drawing down the IMF allocation of over $510m in special drawing rights in September this year.
Although the IMF has urged the government to use the SDR allocation to replenish its foreign reserves, Biti said $210m of the allocation would go towards infrastructure investment while $50m was being allocated to essential inputs for small-scale farmers.
Biti ruled out an early return to the Zimbabwe dollar which was displaced by dollarisation at the start of 2009, saying that the current system of multi-currencies would be retained, but in 2010 the government would a debate to design an optimum currency policy for the country. Financial Times