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By Happiness Zengeni


On the 26th of November 2020, the Minister of Finance and Economic Development of Zimbabwe presented the 2021 National Budget Statement. A major highlight in the statement was that the Zimbabwe economy has experienced sustained recessions in 2019 and 2020, with GDP estimated to have contracted by -6% and -4.1%, respectively. According to the Ministry of Finance and Economic Development, the economic contraction has been a result of output losses in key sectors such as agriculture, mining, manufacturing, tourism and electricity generation. The recession has largely been a result of shocks such as (i) prolonged drought episodes, (ii) Cyclone Idai and (iii) the Covid-19 pandemic. As part of its National Development Strategy 1 (NDS1), the Government of Zimbabwe has set new growth expectations for 2020 and beyond. The NDS1 in targeting to steer the economy onto a growth path and realise an average of 5.0% GDP growth rate per annum from 2021 to 2025. The new estimates also suggest that the Zimbabwean economy will rebound by +7.4% in 2021 on the back of a recovery in agriculture. An annual inflation target of c135% has also been set for the end of 2020. The long-term target is to reduce inflation to a single digit of between 3% and 7% by 2025 in line with the SADC macroeconomic convergence target.

Revised GDP Growth Estimates

Source: Ministry of Finance & Economic Development of Zimbabwe


Cumulative revenue collections for the 9 months of 2020 amounted to ZWL88.7bn. Of this amount, tax revenues amounted to ZWL86.6bn (97.6%), while non-tax revenue amounted to only ZWL2.0bn (2.4%). This confirms the notion that the Zimbabwean Government is largely depending on taxes as its major source of funding. As illustrated in the info-graph below, the major contributors to total revenue collections were Tax on Income and Profits (TIP), constituting 35%. This comprises of (i) individuals tax, (ii) companies’ tax, (iii) domestic dividends and interest and (iv) presumptive taxes. TIP was followed by Value Added Tax (25%) and the Excise duties (14%). Overall, cumulative revenue collections for 2020 are projected at ZWL173.5bn, underpinned by the resumption of operations by businesses across sectors from June 2020.

2020 Revenue Head Contributions

Source: Zimbabwe Revenue Authority

Expenditures for the period of January to September 2020 were ZWL84.9bn. Of this amount, current expenditures amounted to ZWL53.0bn (62.4%) while capital expenditures and net lending amounted to ZWL31.2bn (36.7%). Expenditures for the year 2020 are estimated to reach ZWL162.4bn. The main expenditures are employment costs at c39.9% of total expenditure. Capital expenditure and net lending for the 2020 financial year is estimated at 33.6% of total expenditure.

2020 Breakdown of Expenditures

Source: Ministry of Finance & Economic Development of Zimbabwe

Overall, a budget deficit of ZWL4.9bn (-0.5% of GDP) is anticipated by end of 2020, reflecting managed expenditures.


The Government of Zimbabwe has set a ZWL421.6bn (cUSD4.2 billion) budget for 2021. Total capital expenditures constitute ZWL131.6bn (5.5% of GDP), while current expenditures are expected to consume ZWL290bn (12.1% of GDP). A budget deficit of ZWL30.8bn (-1.3% of GDP) is targeted in 2021. This target is within the SADC target of below 3.0% of GDP. As illustrated in the info-graph below, key allocations under the 2021 Budget are goods and services (ZWL59.4bn), employment costs (ZWL142.6bn), interest (ZWL1.5bn) and transfers (ZWL86.5bn), with the balance reserved for capital development programmes.

Allocations for the 2021 Financial Year (ZWL360.5bn)

Source: Ministry of Finance & Economic Development of Zimbabwe


The Government of Zimbabwe has put in place revenue enhancement proposals to boost the National Treasury coffers. We summarise the main proposals here-under;

1. Cannabis Levy

There was a proposal to introduce Cannabis Levy, chargeable on the value of exports, at varied rates of tax that correspond to the level of the processing;

· 10% on the export sales value of finished packaged medicinal cannabis oils that are ready for resale;

· 15% on the export sales values of extracted medicinal cannabis oils that require further processing; and

· 20% on the export sales value of dried medicinal cannabis flowers.

2. Excise Duty on Tobacco and Alcoholic Beverages

Excise duty on tobacco and alcohol was increased. Excise duty on cigarettes was previously pegged at ZWL100 per 1,000 cigarettes plus 20% of the ex-factory price. It has now gone up to the equivalent of USD5 per 1 000 cigarettes plus 20% of the ex-factory price. Excise duty on spirits was 30% plus ZWL10 for every litre of pure alcohol (LAA). This will now increase to 30% plus an equivalent of US$1 per LAA. Duty on other fermented beverages, including beers, increased from ZWL3 per litre to the equivalent of USD0.25 per litre.

3. Excise Duty on Fuel

Excise duty on diesel and petrol is currently pegged at US$0.25 and US$0.30 per litre, respectively. It was proposed to align the excise duty rates for both diesel and petrol to US$0.30 per litre. All taxes and levies on diesel will also be reviewed to align with rates applicable on petrol. These taxes and levies include Carbon Tax, ZINARA Road Levy, NOCZIM Debt Redemption and Strategic Reserve levies.

4. Payment of Excise Duty in Foreign Currency

Fuel imports shall be deemed to be in foreign currency under the Direct Fuel Importation Facility unless the importer provides satisfactory documentary evidence to the effect that funds were sourced through the auction system.

5. Presumptive Taxes

The Government of Zimbabwe will be intensifying its efforts on the implementation of a presumptive tax structure on informal businesses that include micro and small enterprises, with a view to ensure that they contribute to National Treasury. Several small to medium-sized enterprises (SMEs) in Zimbabwe operate from designated business premises where the landlords are either Local Authorities or private property owners such as the Gulf Complex and Kwame Mall. The fixed nature of businesses is considered an opportunity for the tax administration to improve tax collections from presumptive taxes. It has been proposed to introduce a presumptive tax of an equivalent of USD30 per unit per month.

Overall, we highlight that in an environment characterised by (i) limited foreign direct investments, (ii) suppressed donor activity and (iii) a lack of financial support for multilateral institutions has forced the current administration to depend heavily on taxes. New tax heads such as the Intermediated Money Transfer Tax (IMTT) have led to a general increase in the cost of doing business and has adverse effects on vulnerable groups such as the unemployed (especially women). An assessment of the policies promulgated by the previous administration clearly shows that the focus has shifted to “more taxes”. Below are revenue enhancement and expenditure management measures put in place by former Minister of Finance & Economic Development; Patrick Chinamasa in his 2018 National Budget;

· A freeze on recruitment in the public service;

· Downsizing of Diplomatic Missions;

· Abolishment of the Youth Officer posts under the Ministry of Youth, Indigenisation & Empowerment and transfer of the roles to the Ward Development Coordinators in the Ministry of Women, Gender and Community Development;

· Government to retire staff above the age of 65;

· No first-class travel will be permitted across the board save for the Presidium;

· Restrictions on the Class of travel based on grade;

· Government granted a three-month amnesty to individuals and corporates for the return of illegally externalised funds and assets;

· Regularisation of lifestyle audits of all Public Office Holders for the purposes of ensuring that the respective office holder’s lifestyle is commensurate with their level of income;

· Introduction of staggered export tax rates on the un-beneficiated minerals-export tax of 5% on the gross value of exported lithium; and

· Sports betting - the introduction of 5% levy on gross takings by bookmakers with effect from 1 January 2018.

A comparison of the budgetary measures under the two administrations clearly shows that the rules of the game have shifted to “more taxes to local businesses and the citizenry”. In this note, we contend that the end of a game of such measures would be an increase in poverty levels largely because of limited economic opportunities and the increase in the cost of doing business both in the formal and informal economy.

Growing poverty levels in Zimbabwe

The proportion of economic activities that are categorised as informal or small-scale is unusually high in Zimbabwe. While there is need to collect more revenues for government-related projects, little is known about the impact of this tax on informal operators– particularly its impact on women, who make up most small-scale traders in Zimbabwe. Informal sector players are already subjected to other tax-like payments, in addition to presumptive taxes, storage fees, market fees and toilet fees. Thus, when considering taxation of the small-scale sector, it is important to consider all payments that traders pay, not only formal taxes. It is important to consider the impact that the new taxes have on the growth of small businesses, and specifically on gender equality. In most countries (including Zimbabwe), there are more women in informal employment in non-agricultural activities than men. Because a higher proportion of women than men work in the informal sector, taxes on the informal sector fall on women more than men.

Recent research from the World Bank estimates that approximately 40-60 million people will be pushed into extreme poverty (number people living on less than USD1.90 a day) in 2020 because of the Covid-19 pandemic. While Sub-Saharan Africa (SSA) has been hit relatively less by the virus from a health perspective, projections suggest that it will be the region hit hardest in terms of increased extreme poverty. Major factors include (i) limited social-safety nests, (ii) commodity-driven economies and (iii) the lack of national financial reserves. In the case of Zimbabwe, the limited economic activity that came because of Covid-19 social distancing measures has created new risks such as (i) company closures, (ii) increased levels of formal unemployment and (iii) shrinkages in the value of exports receipts (excluding gold). As a result, we are seeing the emergence of a “new poor”. This new class is different from the existing poor. The new poor are mostly based in urban areas and employed in informal services. They also depend on remittances for food, healthcare, and basic needs.

The Risk of an increase in economic inequality in Zimbabwe

While the Government of Zimbabwe is focusing on achieving an average economic growth rate of 5.0% from 2021 to 2025, the arithmetic of economic growth does not necessarily imply any reduction in economic inequality. If the incomes of the rich and the poor grow at the same rates, the proportionate difference between them stays the same, and the absolute difference – in dollars per year – increases. As demonstrated by the original Kuznets curve hypothesis, when growth or industrialisation increases, income inequality first increases and then decreases at a later stage.

The Hypothetical Kuznets Curve

Mark & Associates Consulting Group

Inequality is only expected to decrease when a certain level of average income is reached and the processes of industrialization – democratization and the rise of the welfare state – allow for the benefits from rapid growth and increase the per-capita income. Our view is that current policies are not addressing the fundamental constraints in the broader economy and are in fact increasing inequality. We summarise some of the main areas where current policies are perpetuating income inequality hereunder.

· Firstly, salaries and wages of most workers within the private and public sectors are in Zimbabwean dollars (ZWL). The deteriorating exchange rate implies that the real values of incomes is declining on a monthly, if not daily. This situation presents serious risks for companies given the pressure to continuously review salaries. We also highlight that certain sectors such as real estate (rentals and property purchases) are still pricing in USD and this presents further pressures on disposable incomes. Informal sector transactions are also in USD and ZWL pricing is pegged against the parallel market exchange rate. Wages and salaries of those that are formally employed have therefore not moved in line with inflation. Most households are living below the poverty datum line. We estimate that the average Zimbabwean survives on less than USD50 per month.

· Secondly, the limited avenues for companies to generate forex implies that production levels have dwindled (capacity utilisation projected at 27% in 2020). The low productivity has led to downsizing thereby contributing to unemployment. Other factors such as fuel and power shortages (also linked to forex) have also affected productivity levels across industries in Zimbabwe.

· Thirdly, taxes in Zimbabwe remain high. It is worth noting that Zimbabwe has one of the highest personal income tax rates in the world. This is because the Government of Zimbabwe is cash-strapped and revenues from the Personal Income Tax Rate are an important source of income. The Intermediated Money Transfer Tax (IMTT) has also negatively impacted household incomes and constrained consumer demand. The 2.0% tax has made the general populace worse off given the contraction in consumer purchasing power and the inability of households to build personal assets.

· Finally, access to capital for small and medium-sized businesses (SMEs) remains limited. Policymakers need to boost employment and aggregate demand by providing financing solutions for micro-enterprises.


· The Monetary and Fiscal policies in Zimbabwe remain tight and are centred around reduced expenditures and limited money supply growth. However, this is against a backdrop whereby the civil service has been going on incessant strikes in a bid to pressure the government to improve working conditions and salaries. Government wages have not been meeting the increased cost of living. This creates an environment of elevated social unrest risks;

· The 2021 National Budget allocated ZWL$55bn to the health sector. The allocation also comes at the back of health services employees demanding better-equipped workspaces. Zimbabwe currently ranks among countries with the highest maternal mortality rate while hospitals and clinic lack equipment and need major refurbishments. There is a need to aggressively engage the international donor community to restore the health sector in Zimbabwe;

· The tax-free threshold was raised slightly from ZWL5,000 per month to ZWL10,000 per month, implying that tax bands will begin at ZWL10,001 per month. The highest marginal tax rate remained at 40%. This is not much of a relief given that in October 2020, a Zimbabwean family of five needed ZWL18,750 just to stay above the poverty line; and

· Government will now restrict the importation of cars that are 10 years or older. This does not apply to commercial vehicles, such as trucks, tractors and earthmoving equipment used in mining or construction. This means owning a car has just slid further from the reach of the majority, who cannot afford new vehicles. Cars older than 10 years are now off the Open General Import Licence. This means that, from 2021, one will need a special import license for older cars. Our view is that such measures could open room for corruption particular in the acquisition of special import licenses.


Corruption, poverty and vulnerability continue to be major challenges confronting Zimbabwe. In addition, the country’s social assistance system is not comprehensive and only offers rudimentary social protection. Furthermore, it does not provide adequate benefits to beneficiaries and it is neither predictable nor reliable. These challenges are largely due to the limited capacity of the government to provide adequate budgetary support for social assistance. The introduction of universal benefits for vulnerable groups in the medium to long term would contribute towards universalization of social protection. There is an urgent need to expand the scope and coverage of social assistance and to ensure that the benefits are adequate.


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