People have often wondered if there are differences between the so-called second republic and the administration before it. That’s a valid line of inequity considering that the vast majority of the people in government right now were also in the previous (presumably first-republic) administration. One area of difference I have noticed which sets the second republic apart is its aggressive taxing policy. Led by the infamous Mthuli Ncube the government has constantly dreamt up new ways to tax the populace. Such policies range from the 2% tax that has never been popular to this day and the dubious proposed cellphone tax that will see people having to pay a US$50 presumptive cellphone tax.

Now you can add more tinder to that growing controversial taxes pile. Starting this year (2022) those who receive their income partly in USD and ZWL will be taxed as if they are receiving their entire in USD. This means that if you receive payment in USD and ZWL all your taxes will be payable in USD. First, let us look at the portion of the Finance Act that deals with this issue before we provide an explanation and offer some illustrations:

“For the purpose of section 14(2)(a) of the Finance Act, the taxable income from employment of a person who receives such income partly in Zimbabwe dollars and partly in United States dollars shall be taxed as if the income was all denominated in United States dollars, with the Zimbabwe dollar portion of the income being converted to its United States equivalent at the interbank rate prevailing when the income was received, and aggregated to the part of the income denominated in United States dollars.”

Finance Act applicable in 2022

Unanswered come to mind?

Like all of the government’s controversial tax laws, this is not a good law and I am not referring to its morality here, I am talking technical phrasing. The law doesn’t seem to provide a threshold for when the provision comes into effect and seems to suggest that it’s a blanket coverage law. This means that even if you earn only US$1 and $100 000 ZWL you will still be taxed in USD which is just plain ridiculous. Then there is the ridiculous usage of the “official rate” to make conversions even though no one but the privileged few who have access to the forex auction uses it. In fact, a lot of those who partake in the auction do not use that rate either.

This is because for technical reasons it’s simply not sensible to use the rate as it often has no bearing on the actual cost of foreign currency to the businesses. More often than note the rate you see being peddled as the official rate is actually just an average. The trouble with averages is that they do not match up with actual values. So when they say the official rate is 108 they are just citing an average. Some businesses have actually paid less than this and others have paid more. Finance rules dictate that each business should actually use the rate at which it obtained the foreign currency when making calculations and computations. So businesses are not being saboteurs or unreasonable when they insist on this they are just being sensible.

Anyway, this is not about businesses but about employees. It would have been great if the government had set a reasonable threshold for this rule to apply Even better still the government shouldn’t be doing this at all. They keep insisting there is no economic crisis in this country and that their Zim dollar project is doing well. If everyone loves the Zim dollar that much they, as the architects of the Zimbabwean dollar project should be cheerfully accepting it a the official rate and not seeking to appropriate US dollars from private individuals.

Also, it’s not clear whether you will end up having to pay in actual USD or you will pay in ZWL at the official rate. There is a world of difference here. If you use the official rate to convert your ZWL salary to USD you end up overstating what you actually earn. For example, if you earn about $30 000ZWL and US$50 if you use the official rate your total salary in USD will be around ($277+50) that is US$330-we used a rate of $108 ZWL to 1 USD to make the conversion. However, using the black market rate your salary would be $142+50 that is US$192. Tax obligations on either one would be vastly different. The good news is that if you are in this range you would have zero tax obligations.

What would have been fair would be to pay your tax obligations in the currency your earn. So if you earn US$50 above you would pay Tax on that in USD and pay tax in ZWL for whatever you earn in ZWL and so on. Better still as I have already suggested above the government should be happy to receive ZWL at the official rate in such instances. Naturally they will not like this and will probably come up with all sorts of excuses. The truth though is that if the rate they had set was fair they wouldn’t going to all these lengths.

 

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