Tax reduction fails to bring big impact on prices

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© THE decision to reduce value added tax (Vat) from 15 percent to 14,5 percent and to change the intermediated money transfer tax (IMTT) tax-free threshold from $20 to $100, had a minimal impact on prices of basic goods.

Vat is an indirect tax on consumption, charged on the supply of taxable goods and services while the IMTT — also known as the two percent tax — is a levy introduced by government in 2018 to fund government projects.
The move by government has failed to bring price reductions as inflation has continued pushing up the prices of goods and services in the country.
For instance, a two-litre bottle of cooking oil, which was selling at around $56 before the reductions, now costs around $65.
Two kilogrammes (kg) packets of rice and sugar, a kg of beef and 2kg packet of chicken are retailing at $39,99 and $35, $125 and $165 respectively. While some products have largely retained their prices from December 2019, others have slightly gone up. The 0,5 percentage point reduction in Vat came into effect on January 1.
“It is a welcome development and shows good intentions by the government but a minimum of 2,5 percent would have made a huge impact on pricing.
“Because the fundamental issue is to stimulate production, unfortunately about 70 percent of the economy is informal,” said Denford Mutashu, Confederation of Zimbabwe Retailers (CZR) president.
Zimbabwe is currently experiencing hyper-inflation resulting in the skyrocketing of basic commodities. Another headwind is the informal economy which is quickening dollarisation in the country.
Concerning the IMTT, government also revised the tax-free threshold from $20 to $100.
However, the food basket for a family of five is estimated to be above $3 000 by the Consumer Council of Zimbabwe (CCZ). This means that most families will be purchasing goods way above $100 daily.
For a breakfast meal comprising two loaves of bread, a dozen eggs, 1kg packet of sugar, a family needs around $110. The lowest paid civil servant is earning around $1 203 amid a sharp decline of consumer purchasing power on the back of skyrocketing prices.

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