The Sunday Mail
On September 11, 2014, Finance Minister Patrick Chinamasa presented the Mid-Year Fiscal Policy Review Statement.
Traditionally, the statement should be presented in the July-August period, but it came about two months late, and this has a negative bearing on its efficacy.
Nonetheless, given that Minister Chinamasa had a rather packed work schedule, the statement was generally progressive and most welcome.
It contained by far more positives than negatives, if any, and was in almost complete harmony with the Monetary Policy Statement by Reserve Bank Governor Dr John Mangudya.
I, however, wish to propose the insertion of a clause into the Public Finance Management Act making it mandatory to announce the Mid-Year Fiscal Policy Review Statement by August 31, at the latest.
Having perused the statement, the RBZ Debt Assumption Bill, and the 2015 National Budget consultations, I also wish to make the following comments and suggestions in the national interest.
Current account deficit
Imports for the six months to June 30, 2014 were about US$3 billion, whereas exports stood at US$1,2 billion: a current account deficit of US$1,8 billion.
Comparative figures for the corresponding period in 2013 were US$3,9 billion, US$1,5 billion and a deficit of US$2,4 billion, respectively.
In order to reduce or eliminate this gap going forward, imports need to be further substantially reduced and exports materially increased or, better still, achieve both these variables concurrently.
The revenue-generation and industry protection measures in the statement will assist in achieving these objectives.
Import reduction
Increase in customs duty on new and second-hand imported vehicles, blending and increasing excise duty on fuels as well as increasing duties of all other listed and mentioned items such as duty of 25 percent on cellular phones.
The increase in excise duty on fuel should not be inflationary this time around. Our businesses should change their traditional mindset, which has in the past seen them effect unjustifiable and even outrageous price hikes on the back of increases in excise duties.
We have already seen fuel retailers passing on the full five US cents per litre increase to the consumer, notwithstanding the progressive oil price drop on the international market.
For some of these enterprises, it is as if fuel is the only or even the major expense item on their income statements.
This behaviour exhibits lack of business integrity, knowledge or greed.
The measures announced also have the positive effect of protecting the local manufacturing industry and vehicle assembly activities, and enhancing and protecting agriculture.
We hope to see the major revival of the motor assembly industry, in particular.
Whilst the Chisumbanje Ethanol Plant is now operating at close to full throttle, the same cannot be said of the Mt Hampden bio-diesel facility, which was set up a long time ago with the intention of using jatropha as the main feed input.
The facility operation, coupled with the envisaged increases in blending percentage levels, both at this plant and Chisumbanje, will have a very significant impact on import substitution.
Methane gas and oil reserves at Lupane, and now discoveries of the same anticipated in the Zambezi Valley, are like manna from heaven.
Export increase
Value-addition espoused in Zim-Asset and emphasised in the Mid-Term Fiscal Policy Statement will lead to enhanced export receipts above the benefit of employment-creation.
We recognise the following measures in the statement: Revival of industry which should hopefully lead to increased exports of locally-manufactured goods; increased agricultural production having the same effect on exports in both their raw and value-added form.
Export earnings should also be enhanced materially from value-addition processes in the mining sector.
Diaspora remittances are coming in handy for the country, and should be viewed as some form of FDI.
Finally, it should be highlighted that the current account deficit has a lot to do with the much-talked-about and dreaded scourge of liquidity crunch.
Fiscal deficit
Revenue for the six months to June 30, 2014 was pegged at US$1,7 billion and expenditure at US$2 billion — a US$300 million deficit.
These were against revenue and expenditure targets of the same amount of US$1,8 billion for the two.
Again, this fiscal gap can be narrowed, closed altogether or even reversed.
The statement also provides for measures that may lead to increased revenue inflows. These measures include increasing duties on fuel, vehicles and other items.
Improved tax administration efficiency may also result in the same.
Special mention needs to be made of progress in this regard under e-governance, which was unfortunately not specifically highlighted in the statement.
What was mentioned in the statement, which warrants further elaboration though, is the proposed amnesty to taxpayers effective October 1, 2014.
This amnesty deserves much greater publicity than it has been accorded.
This is a brilliant and wise Government strategy, which gives all defaulting taxpayers the opportunity to come clean and make a fresh and legitimate start. It should also result in the creation of a comprehensive database for future use.
However, the time-span of six months from October 1, 2014 is, in my view, restrictive.
The amnesty should run from October 1, 2014 to December 31, 2015. The amnesty ought to apply to all taxpayers without exception.
The amnesty should also be applicable to all tax issues from February 1, 2009 (official start of dollarisation) to December 31, 2014 regardless that some matters may be under investigation or litigation.
All taxpayers should be exempted from interest, penalties, charges or fines, for instance, late submission of returns during the amnesty period.
Settlement of all tax liabilities relating to the amnesty period should be allowed up to the tax year ending December 31, 2016.
All tax assessments by the Zimbabwe Revenue Authority and self-assessments should be brought up to date by December 31, 2015.
The review and enactment of the Income Tax Act and all other Statutory Instruments pertaining to tax and customs, and the amended Public Accountants and Auditors Act, should be in force by June 30, 2015.
In addition, the same deadline should also apply to completion of the review and enactment of the Public Finance Management Act.
It should be appreciated that the loss of penalties, interest, etc, will by a very wide margin be offset by increased tax revenue inflows generated by the amnesty.
On a related matter, more revenue can be obtained from toll gates, not only with the planned increase in the numbers of these gates from the current 22 to over 50 , but with the implementation of rudimentary enforcement measures.
Consider the toll gate near Dema Business Centre on Seke Road, where toll avoidance is rampant.
Tax laws in general need a review informed by the need to tax more efficiently, simply and effectively the informal sector. This sector is huge and possesses enormous potential for tax revenue generation.
The planned public enterprises reform is also most welcome.
Expenditure reduction measures
The planned review of the Procument Act is most welcome and long overdue.
Minister Chinamasa recently correctly remarked that the State Procurement Board was “the Capital City of Corruption”.
The main thrust of this review should be to decentralise procurement responsibilities and leave the board with only a monitoring and regulatory role; much like the role played by the RBZ in the financial services sector.
Employment costs of the civil service take upward of 80 percent of our expenditure.
We are currently preoccupied, for good reasons, with ensuring the least-paid earns above the PDL.
What has been put on the back burner but is of importance is rationalising staffing levels in the service. The question is whether taxpayers are getting full value for money from the civil service.
The matter is reconcilable to security, other sensitive concerns and social requirements, than we have tended to think, imagine and/or even believe.
The Agenda of Civil Service Rationalisation should, thus, be brought back on the table for discussion and final resolution.
Debt takeover
The RBZ debt should now be taken over by central Government expeditiously to allow it to operate without the burden and distortions of events of years gone by, though many were fully justified at the time.
What is at issue is the matter of objective and honest classification of the debt into two basic components – recoverable, eg farm mechanisation, and non-recoverable ie fuel costs, medical drugs and national foreign debt repayments.
The former is where direct beneficiaries are identifiable and are presumably on record, and the latter is to be met from general taxes, as they were for the general interest of the nation.
It becomes difficult, though, if not impossible, to isolate individual direct beneficiaries.
Another issue that should concern us is identifying the Government entity or agency best suited to efficiently undertake this onerous and important responsibility of recovery.
I suggest the Finance Ministry, using its Debt Management Office, or better still, the generally more competent Zimra.
All fiscal, quasi-fiscal and monetary liabilities should be accepted and housed appropriately within central Government.
Financial institutions should be granted immunity from prosecution in light of the foreign currency taken by the RBZ to meet past national needs.
It is imperative that the outstanding phases of the RBZ Farm Mechanisation Programme be completed. The programme should go hand-in-glove with that of irrigation equipment.
The Mid-Year Fiscal Policy Statement quite wisely stated that foreign debts (estimated at US$8,8 billion) be settled on condition that sanctions are first lifted.
Foreign debt should never be allowed to take precedence over our domestic debt, though.
The on-going IMF Staff Monitored Programme should be seen in its proper perspective, that of whiling away time (kutandadzana) by allowing IMF staff to enjoy allowances on visits here.
We return the favour by letting our personnel visit their offices abroad, regularly, for essentially fruitless discussions.
As long as the Zimbabwe Democracy and Economic Recovery Act (Zidera) is in force and decisions of the IMF require 85 percent affirmative votes to go through, no substantial support will come our way from them any time soon, as the US alone holds 18 percent voting rights.
The demonetisation issue mentioned in the fiscal policy review should be addressed with vigour and clarity of purpose, and also within specified timelines.
For starters, Zimbabwean coins (not special coins equivalent to respective US cents) can be used to good effect. It would also be foolhardy to try again to import another consignment of rand coins after the previous debacle.
Issues to do with exchange rates are being given attention they hardly deserve on the back of unjustifiable fears over demonetisation.
We should not lose sight of the fact that the domestic debt includes a sizeable chunk of Zimbabwe dollar denoted prescribed assets, which the inclusive Government defaulted on after dollarisation to quite disastrous effect to Pension Funds, insurance companies and other entities holding such paper, not to mention the pensioners and policy-holders concerned.
Some are still struggling to recover, others have passed on, got liquidated or are insolvent.
National Budget 2015
There was a call in the fiscal policy review to commence in earnest consultations leading to the 2015 National Budget.
It should be expected that this budget will be much bigger than the US$4 billion 2014 Budget.
Mega-deals secured with our friends from China and Russia should find expression in the 2015 Budget going forward to at least 2018 under Zim-Asset.
Fortunately, all these big projects are already funded or financed, making the Budget process relatively convenient to undertake.
Adequate provisions for demonetisation should also be made in the appropriate Budget projections.
The Budget should reflect a healthy balance between capital and recurrent expenditure as the mega-deals relate mainly to infrastructure.
We should be the first ones in the queue for capital financing when the Brics Development Bank becomes fully operational.
The Employment Creation Strategy contained in the fiscal policy review, which has been conspicuous by its absence in all Budget statements and fiscal reviews since 2009, should come into full glare in the 2015 National Budget.
The strategy centres on agriculture production, mining, value-addition and tourism.
Proposed Special Economic Zones should find space in the mix.
