By MacDonald Dzirutwe |Reuters|
Zimbabwe plans to cut value added tax (VAT) from January to stimulate consumer demand in an economy set to a contract this year after a drought and power shortages, Finance Minister Mthuli Ncube said on Thursday.
The southern African nation is in the grips of its worst economic crisis in a decade, marked by shortages of foreign currency, fuel and rolling power cuts lasting up to 18 hours a day.
Presenting the 2020 budget to parliament, Ncube proposed cutting VAT to 14.5% from 15% effective January 2020. He also proposed lowering the corporate income tax rate to 24% from 25%.
President Emmerson Mnangagwa, who took over from the late Robert Mugabe in 2017, is struggling to convince the population that his economic reforms will work.
Everyday life is increasingly difficult. Prices of basic goods, fuel and electricity have risen sharply while salaries have lagged behind.
That trend could continue after Ncube said he would from next January remove subsidies on maize and wheat, the two most consumed crops in Zimbabwe.
To give some relief to Zimbabweans who have seen their incomes eroded by inflation, which economists estimate at 380%, Ncube also raised non-taxable monthly income to 2,000 Zimbabwe dollars ($130) from 700 Zimbabwe dollars.
Ncube painted a rosier outlook on GDP growth, forecasting that the economy would grow by 3% next year after a projected contraction of 6.5% this year, helped by better agricultural output and electricity supplies.
He also said the country’s budget deficit would narrow to 1.5% of gross domestic product (GDP) in 2020 from 4% of GDP this year as the government keeps spending in check.