Zimbabwe National Budget Brief 2016 Building a conducive environment that attracts foreign direct investment 26 November 2015 Contents 1. Introduction 2. Arrears clearance 3. Economic overview 4. Budget framework 5. Revitalising agriculture 6. Advancing beneficiation/value addition 7. Encouraging private sector investment 8. Unlocking the potential of SMEs 9. Infrastructure development & utilities 10.Social services 11.Financial sector stability 12.Government finances 13.Revenue measures Disclaimer: The contents of this budget brief have been produced for information purposes only. No reader should act on the basis of any statement contained herein without seeking professional advice. Whilst all efforts have been made as regards accuracy of information contained in this document, no responsibility is accepted for any errors and omissions. Neither part of, nor the whole of this document, should be reproduced without obtaining the prior permission of Grant Thornton. 2013 Grant Thornton | Zimbabwe National Budget 2014 Summary | 19 December 2013 2 Introduction Major positive strides are being made as the country progressively implement the ZimAsset. In 2015, notable achievements were in the following areas: Infrastructure projects in energy generation and transmission, transport sector, water and sanitation, ICT, education and health facilities; Financial sector stabilisation; Re-engagement with the international financial community;
Improved doing business environment; Improved cost of doing business; Support for distressed industries; Support for agriculture; and Advances on the value addition and beneficiation strategy. The ten point plan which was introduced on 25 August 2015 which provide guidance to the implementation of the ZimAsset focuses on the following: Revitalising agriculture and the agro-processing value chain; Advancing beneficiation and/or value addition to agricultural and mining resource endowments; Focusing on infrastructure development, in the energy, water, transport and ICT subsectors; Unlocking the potential of Small to Medium Enterprises; Encouraging private sector investment; Restoration and building of confidence and stability in the financial services sector; Promoting joint ventures and public private partnerships to boost the role and performance of state owned companies; Modernising labour laws; Pursuing an anti-corruption thrust; and Implementation of special economic zones to provide the impetus for foreign direct investment. The crafting and implementation of the 2016 National Budget strives for Building a Conducive Environment that Attracts Foreign Direct Investment. Arrears clearance The 2016 National Budget is centered on implementation of ZimAsset and clearing of the external debt arrears. The government has put in place strategies to clear its external debt arrears by the first half of 2016 as follows: Use of domestic resources to clear USD111 million arrears to the IMF; Arrangement of bridge finance with regional and international banks to clear USD601 million African Development Bank debt arrears; and Use of medium to long-term loan facility to clear USD1.1 billion arrears to the World Bank Group. Realisation of the Strategy will also critically depend on the following: Successful completion of the current Staff Monitored Programme (SMP) with the IMF which will be reviewed in February 2016; Engagement of the Paris Club and other Bilateral Creditors for debt resolution, on the strength of the Staff Monitored Programme Performance. Economic overview
The global economic growth remains moderate, and is projected at 3.1% in 2015, as compared to 3.4% in 2014. In 2016 global growth is projected to rise marginally to 3.6% driven by accommodative monetary policies in advanced economies. Sub-Saharan Africa is projected to grow by 4.3% in 2016. In 2016, Zimbabwes GDP growth is projected to rebound to 2.7% mainly on account of mining, tourism, construction and the financial sector. Commodity prices Commodity prices are projected to rebound marginally with exception of gold and crude oil whose prices are projected to continue to decline. Zimbabwe is expected to benefit from low oil prices, a development which is expected to temporarily ease the import bill and costs to industry. This is summarised in the table below: Commodity Units 2014 2015 Forecast 2016 Agriculture Wheat USD/ton 285 205 211 Tobacco USD/kg 5
5 5 Maize USD/ton 193 170 174 Soya Beans USD/ton 492 390 401 Sugar (World) USD/kg 0.37 0.29 0.29 Gold USD/oz
1 266 1 175 1 156 Platinum USD/oz 1 384 1 080 1 116 Nickel USD/ton 16 893 12 200 12 818 USD/barrel 96.2 52.5 51.4 Minerals Crude Oil, avg, spot
Economic overview Inflation Inflation is forecast to be around zero due to the appreciation of the US dollar. External trade Exports are projected to be USD3.7 billion in 2015 while imports will be USD6.2 billion giving a trade deficit of USD2.9 billion. The balance of payments deficit is forecast to be USD130.2 million in 2016. Current account A current account deficit of USD2.6 billion is anticipated in 2015 against USD2.8 billion in 2014. This partly reflects unrecorded transactions, in the form of remittances. Outlook Exports are projected to increase to USD3.7 billion in 2016, from USD3.4 billion projected in 2015. Imports are projected to marginally decline to USD6.2 billion from USD6.3 billion. Public debt Public debt, including arrears, was estimated at USD8.368 billion as at September 2015 made up of USD1.290 billion domestic debt and USD7.078 external debt. Budget framework Budget parameters The crafting of the 2016 Budget is anchored on interventions to minimise on all the downside risks that pose adverse implications on the attainment of Zim Asset objectives and targets. Some of the down side risks are: global developments related to commodity prices and demand; adverse weather conditions; fiscal challenges; and institutional weaknesses. Budget estimates Projected total revenue is USD3.85 billion. Recurrent expenditure will be USD3.685 billion while USD315 million is proposed for the development budget. Budget assumptions The broad assumptions underpinning the 2016 Budget Framework are as follows: Further prices alignment, with inflation remaining negative and projected to average -1.2%; Improved business environment and lower cost of doing business, which build confidence and attract investment to key productive sectors; Normal to below normal rainfall season; Some rebound of global economic growth to around 3.6% in 2016 ; Subdued international mineral commodity prices, implying low earnings from mineral exports and reduced viability
for mining houses; Low international oil prices, implying reduced energy import costs; Lower cost of borrowing; and Positive prospects arising from the re-engagement process with international financial community. Revitalising agriculture Financing of agriculture USD200 000 has been disbursed for cloud seeding and an additional USD300 000 has been allocated for the same purpose. The banking sector has set aside USD1 billion to finance crop and livestock production during the 2015/2016 agriculture season. The breakdown of commodities that are targeted for lending by (USD) banks is as follows: Category Amount Tobacco 598 146 427 Maize 80 538 000 Soya 25 000 000 Cotton 34 500 000 Livestock, including poultry 60 113 973
Other 46 259 897 TOTAL 944 558 297 The Farmers Stop Order Act Chapter 18 Section 11 will be used to protect all lenders by providing for participation of all financial institutions as well as curbing side marketing of crops. Restructuring of Cottco The restructuring of Cottco includes the Government takeover of USD52.7 million debt and converting it to equity, cost restructuring, registration of farmers , resourcing the Cotton Input Financing Scheme, marketing the cotton and enhancing productivity. Cotton inputs supports scheme is valued at USD25.8 million. Irrigation USD7 million targeting 11 290 hectares is proposed to be channeled towards irrigation. This will be complemented by USD8.6 million from development partners. The EU through FAO has disbursed USD2.6 million and the Swiss, USD1.3 million towards irrigation schemes. Revitalising agriculture Research and extension services USD3 million has been allocated towards research and extension services. Security of tenure Government has been working on improving security of tenure of both A1 and A2 resettled farmers. The EU is providing Euro 4.7 million, while UNDP is providing Euro 500 000 towards unlocking the potential of agricultural land. Farm and rental development levy A1 farmers will pay USD10 rental levy and USD5 developmental levy, all per annum. A2 farmers will pay rental levy of USD3 per hectare and developmental levy of USD2 per hectare, all per annum. These levies are payable quarterly and apply to all resettled farmers with permits and 99 year leases in all Natural Regions from 1 to 5. The Rentals and Development Levies shall form part of the Consolidated Revenue Fund. Livestock development It has been proposed to avail USD2.3 million in 2015 towards procurement of vaccines to control and contain
endemic diseases. Advancing beneficiation/value addition Mining outlook In 2016, the mining sector is expected to rebound, growing by 2.4%, on the back of planned investments, and largely driven by strong performance of gold, chrome, coal, nickel, platinum and diamonds. The projected growth takes cognisance of the constraints facing the sector, namely, depressed international mineral prices, falling demand in export markets, financing, as well as power shortages. Beneficiation Focus has been on gold refining, chrome ore beneficiation, platinum smelting, as well as cutting and polishing of diamonds. The ban on export of unrefined gold is still being upheld, with Fidelity Printers and Refineries still the sole buyer and exporter of gold since December 2013. During the year, the 15% export tax on the exportation of raw platinum was lifted in order to align with the implementation of the proposed time-framed road map on beneficiation and value addition by 31 December 2016. In the diamond sector, the government, as part of the beneficiation drive, has licenced 10 diamond cutting and polishing centres to value-add all locally produced diamonds. Twelve chrome smelting companies were allowed to export chrome ore in excess of their smelting capacity. Consolidation in the diamond sector In an effort to plug leakages through enhanced oversight, transparency and accountability in the diamond sector, the following measures have been put in place: o The government has established and registered a company, the Zimbabwe Diamond Mining Corporation. o This will run the affairs of all diamond mines in the country, with the various diamond mining firms acquiring shares in the consolidated mining company in the proportion of their net asset value. o The Ministry of Mines and Mineral Development will proceed to work with the three concessions belonging to Marange Resources, Kusena and Gyname under the consolidated diamond mining company. o The government has sourced equipment to undertake expanded diamond mine activities from Belarus. Advancing beneficiation/value addition Coal bed methane gas and coal Plans to invest over USD2.1 billion towards setting up gas mines, power stations and dams in the Gwayi - Lupane areas are underway. Progress has been made and an investor has completed exploration in Dandanda area in Lupane and Binga. The project has the capacity to produce 300MW of electricity. Hwange Colliery Company Limited got a Government guaranteed line of credit facility amounting to USD13.03 million
from the Export Import Bank of India for the purchase of mining equipment and spare parts. Further, the Company will benefit from a PTA Bank facility of USD18 million, also guaranteed by Government, for the procurement of dump trucks from Belarus. Resuscitation of dormant mines With regards to tin mining, ZMDC signed a Joint Venture Arrangement with a Chinese company, Beijing Ping Chang Investments, in September 2015 with a view of investing USD102 million into the tin mine which is estimated to have reserves of around 100 million tons. Cadastre Mining Titles Management Information System Government will, through E-Government and Cadastre Mining Titles Management Information System, computerise the countrys register of all minerals data including geographical location, mineral rights and titles, claims and mineral quantum. The envisaged system will enhance efficiency in managing claims and dispute resolution. Advancing beneficiation/value addition Capacity utilisation Government has initiated some measures to help the manufacturing sector through fiscal and import tariff reviews on some selected products, access to resources (Distressed Industry Marginalisation Assistance Facility (DiMAF)), Zimbabwe Economic and Trade Revival Facility (ZETREF)) and investment approvals. Government is extending and will launch the second phase of ZETREF in the first quarter of 2016, with the same objective of assisting companies to access affordable finance. Ease of Doing Business Reforms Government will intensify efforts to address the cost and ease of doing business in 2016. This area is under the purview of the Office of the President and Cabinet under the Rapid Results Approach. National Competitiveness Government has transformed the National Incomes and Pricing Commission (NIPC) to the National Competitiveness Commission (NCC) in order to address competitiveness challenges. Therefore, operationalising the NCC will be expedited in 2016. Special Economic Zones The Special Economic Zones Bill was approved by Cabinet, and gazetted on 23 rd of November 2015. This will pave way for the implementation of the SEZs. Advancing beneficiation/value addition Tourism According to the Zimbabwe Tourism Authority forecasts, tourist arrivals are projected to increase to 2.5 million in 2016, benefiting from vigorous destination marketing and promotion activities targeted at the international, as well as the domestic market. The Tourism Enhancement project supported by the African Development Bank is progressing well. A total of USD0.6 million against an allocation of USD1.3 million was disbursed as at 30 September 2015, with an additional USD200 000 expected by end of year. In 2016, USD500 000 will be disbursed towards the project.
Victoria Falls Tourism Special Economic Zone The government has availed 274 hectares of land to a Special Purpose Vehicle, the Mosi-Oa-Tunya Development Company to facilitate the implementation of this concept. The project should bring immense benefits through expected growth in tourism arrivals, increase in tourism generated income and employment creation across the value chain. Accordingly, drawing from international best practices, the necessary incentives and dispensations in the areas of taxation, duty, liberal visa regimes and exchange control regulations will be availed. Encouraging private sector investment Encouraging Private Sector Investment A friendly and conducive investment environment remains key for our economy to successfully compete and attract investment on the global market. Projections of foreign direct investments are expected to rise from USD591 million to USD614 million in the year 2016. National Competitiveness National Competitiveness Commission will be expedited in 2016 to coordinate implementation of the National Competitiveness Assessment Report recommendations. EMA Levies The current statutory fee for submission of Environmental Impact Assessment is pegged at 1.5% of the project costs. Projec Environment CurrentImpact Assessment fees has been approved on a sliding scale as indicated in the table below. t Catego EIA ry Fees Proposed sliding scale fee Staggered Payment terms of EIA (% project costs)
Level of environmental and social impact and example of projects Small scale projects with minimal impact: small scale mining, small scale infrastructural development projects, SMEs etc. Moderate impacts e.g. Tourism infrastructure, commercial brick moulding, housing development etc. High negative impacts e.g. commercial entities, manmade lakes etc. Extremely High negative impacts e.g. mining, ore processing, chemicals plants, tanneries, oil and gas exploitation. Impact can continue after decommissioning e.g. acid mine drainage A 1.5% of project cost US$210.00 B 1.5% of project cost 0.8% of the project cost C 1.5% of project cost 1% of the
project cost D 1.5% of project cost 1.2% of the project cost 1.5% of The maximum payablemillion EIA EIAis fee cap for all the to D USD2 applicable forcategories projectsfrom thatBexceed fee shall be E maximum cap of A project cost st Upon Upon EIA submission During Implementa
implementation tion 100% nill nill 0.26% 0.26% 0.28% 0.33% 0.33% 0.34% 0.40% 0.40% 0.40% 20% the20% stipulated levels. 60% Encouraging private sector investment Water Tariffs Government has reviewed the raw water tariffs with effect from 1 st December, 2015 as follows; Custom er category
Current tariff (from 01 /10/12 to date New tariff US$/ML) US$/ML % change A2 Farm ers 6.82 5 -27% A1 Farm ers 5 3 -40% Communal Farmers 4.5 2 -56% Industry
9.45 9.45 0% 6 6 0% 9.45 12 27% 50 50 0% Local Authorities Commercial Agriculture(Estates) Mining The water tariffs should lead to more water uptake and usage, particularly for irrigation facilities. One Stop Shop Centre It has been proposed that Zimbabwe Investment Authority (ZIA) be turned into a one stop-shop investment centre to streamline the processing of investment application. Encouraging private sector investment Indigenisation and Empowerment Framework
The frameworks templates and procedures for implementing indigenisation policies have been completed and yet to be announced and gazetted before Christmas by the Minister of Youth, Indigenisation and Economic Empowerment. Bilateral Investment Promotion and Protection Agreements (BIPPAs) The government has signed about 54 BIPPAs which are at different stages of compliance with the country's constitutional requirements. Special Economic Zones (SEZs) Government is currently crafting the necessary framework for the creation of SEZs. The following have been targeted as industry zones for SEZs: Bulawayo: leather and textiles; Lupane: petro-chemicals; Victoria falls, Gwayi, Binga and Kariba: tourism Victoria Falls: finance; Sunway City: technology hub; and
Harare and Mutare: diamond cutting. Efficiency at Boarder Posts Government will expedite the process of transforming boarder post into one stop centres. Rationalisation and consolidation of all government departments to one counter to save time and discourage corruption and leakages will be pursued. Extension of the operating hours at main boarder posts of Chirundu and Livingstone to 24 hours will be considered. The closing hours at the Kazungula boarder post will be extended from 18:00 to 20:00 hours. Diaspora Remittances Government is still finalising the National Diaspora Policy which seeks to provide a comprehensive framework for harnessing diaspora remittances. Official remittances are projected to grow from USD800 million to about USD960 million. Unlocking the potential of SMEs Small to Medium Enterprises continue to play a key role in the economy, employing about 60% of the countrys workforce and contributing about 50% of the countrys Gross Domestic Product.
The Zimbabwe Stock Exchange has developed a regulatory framework and other supporting structures to embrace the SME market and these will be finalised in the first half of 2016. SME Incubation Centre The Government received USD557 883 worth of machinery comprising manufacturing, packaging, processing, and moulding equipment among others from the Indian Government. The renovation of the Incubation Centre, to house the machinery is underway, and the installation of machinery is expected to commence in March 2016. Women Empowerment The Budget thrust is on carrying forward the various women empowerment projects and programmes in line with the above requirement as well as the Zim Asset objectives on value addition and poverty eradication. Specific programmes to be pursued under this Budget include the following: Capacity Building; Womens Micro-Finance Bank whereby the Budget is proposing to allocate a further USD5 million to advance implementation of this project; Promotion of Community Development projects which is at the core of the women empowerment strategy with a proposed allocation of USD500 000. Infrastructure Development and Utilities Overall requirements for infrastructural development for 2016 amount to USD2.7 billion. Energy The Government has prioritised the following projects: Hwange 7 and 8 Expansion Project; Kariba South Extension Power Project; Deka Pump Station; and Bulawayo, Harare, and Munyati Small Thermal Power Stations 17 Infrastructure Development and Utilities
Emergency Power Station Government is looking at options of procuring rented diesel power, with potential to generate 200MW at short notice. Information Communication Technology An amount of USD299.2 million will be invested in the sector in 2016, drawing largely from loan financing and public entities own resources, targeted at expansion and upgrading projects. Net*One is implementing Phase II of the National Network Broadband Project through a USD218.9 million loan facility from China Exim Bank. To capacitate Tel-One in its expansion and modernisation drive during 2016, Government is facilitating mobilisation of USD98.6 million loan from China Exim Bank before the end of the year. Zimbabwe Digital Broadcasting Migration The project is expected to be completed by the last quarter of 2016. Broadcasting Authority of Zimbabwe has earmarked USD132 million from the Broadcasting Fund for this purpose. E-Government Programme USD17.2 million is proposed to be set aside for the E-Government programme, targeting the National Data Centre, Communication Information Centres and establishment of Computer Laboratories at schools. Water and Sanitation The budget provides for investments amounting to USD77.3 million, with USD25.9 million being channelled towards dam construction and USD51.4 million for rehabilitation and upgrading of water and sewer infrastructure. Zim-Fund Phase II Water and Sewer Projects A total of USD18 million is expected to be disbursed in 2016 to facilitate implementation of the project. UNICEF Wash Programme USD6.6 million has been earmarked for implementation of the programme in 2016. 18 Infrastructure Development and Utilities Transport and communication USD135.8 million has been channeled to the transport sector, financed from tax revenues, USD20.7 million; retained funds, USD77.1 million; own resources, USD10 million, as well as USD28 million in loan financing. The Project e shows the allocation of the Total tablenam
below USD135.8 million: Roads Rail Airports Other Grand total USD 84 814 249 13 000 000 33 000 000 5 000 206 135 814 455 Housing construction Future new housing construction schemes will be required to install solar geysers. The Finance Act already provides tax incentives for importation of solar equipment. 19 Social services Education The support under the Education Development Fund being administered by UNICEF is projected at USD 24.4 million for 2016. It has been proposed to allocate USD525 000 to support the implementation of the curricula blueprint approved by Cabinet in September 2015. USD 535 000 has been proposed towards Teacher Capacity Development Programme. For Early Childhood Development, USD525 000 has been proposed towards the procurement of teaching and learning materials, USD245 000 for supervision and monitoring activities and USD1.36 million for the construction of more age appropriate infrastructure.
The Government has proposed to float an infrastructure bond to be underwritten by School Development Association levies estimated to be USD30 million per term for Junior and Secondary Education. It has been proposed to allocate USD3.9 million towards infrastructure development across junior and secondary schools. USD2.7 million has been proposed towards procurement of teaching and learning materials as well supporting schools supervision and monitoring activities. For Higher and Tertiary Institutions, Government has proposed to pursue arrangements for the financing of infrastructure through issuance of an infrastructure bond, to be underwritten by rentals paid by students and staff. Health It has been proposed to allocate USD1 million in support of the Malaria Indoor Residual Spraying programme, as well as Pre-elimination of Malaria programme, covering the malaria prone zones. USD1.5 million has been allocated towards improving the capacity of public health facilities to screen and diagnose Non-Communicable diseases and conditions. For Primary Health Care, USD7 million has been allocated towards low cost high impact primary care interventions which focus on community health and preventive care whilst an additional USD575 000 will be allocated towards the construction of five rural health centers. USD13.7 million has been allocated towards the provision of medical services. USD23.2 million has been set aside for refurbishment of infrastructure and various construction works. For medical equipment, USD10 million is expected to be disbursed in 2016 whilst another USD10 million has been allocated from tax revenues. USD75.8 million will be made available under the Health Development Fund, of which the EU will contribute USD59.2 million with the balance to be availed by other development partners i.e. Canada, DFID, Ireland Norway and Sweden. Financial sector stability Financial sector legislation
Government has approved critical amendments to the Reserve Bank and Banking Acts, aimed at strengthening the legal and regulatory framework. Government is also amending the Insurance Act, Insurance and Pensions Commission Act; and the Pension and Provident Fund Act. Resolution of Non-Performing Loans The Zimbabwe Asset Management Company (ZAMCO) was established to resolve the challenge of Nonperforming Loans (NPLs) in the banking system. To date, ZAMCO has purchased more than USD256.4 million worth of eligible NPLs. As a result, the ratio of NPLs to total loans has declined from a peak of 20.45% in June 2014 to 14.27% as at end September 2015. Credit Reference System The Reserve Bank will finalise the Credit Registry in 2016 so that all borrowers are vetted for credit worthiness for purposes of managing non-performing loans at acceptable levels. Furthermore, the Reserve Bank is working towards establishment of a Collateral Registry to facilitate registration and administration of collateral security, including movable assets. Streamlining Minimum Capital Requirements The Reserve Bank has revised Minimum Capital Requirements in a 3-tier approach, as follows: Tier 1 - USD100 million; Tier 2 - USD25 million; and Tier 3 - USD7.5 million. Infrastructure Development Bank Government will recapitalise the Infrastructure Development Bank to the tune of USD20 million during 2016 to facilitate the banks role in partnering Government in delivering infrastructure development in the country. Exchange Control Liberalisation The limit on the amount of external loans that can be approved at bank level was increased to USD10 million to facilitate inward bound external resource flows. Participation by foreign investors in the domestic bond and money markets was increased to 100%. Financial sector stability Financial inclusion In order to harness deposits and promote long term savings, Government is drafting the National Financial Inclusion Strategy which will be implemented in 2016.
Lending rates Banking institutions have aligned their lending rates with interest rates guidelines provided by the Reserve Bank, resulting in the reduction of borrowing costs for companies from above 35% to within 6-18%. Issuance of bond coins RBZ has issued about USD13.567 million worth of bond coins, in various small denominations, and more coins will be provided in line with demand developments. Already, additional coins worth USD6 million have been ordered. Treasury bills Effective 2016, Treasury bill issuances will be through the open tender system and the results will be announced to the public to promote transparency. Financial sector stability Non-Bank Financial and Capital Markets Insurance and Pensions Where an investor, insurer or insurance broker has flouted the provisions of the insurance legislation, it is proposed to review the fine, from level 6 to 14 on the Standard Scale of Fines or a penalty equivalent to the sum assured, whichever is high. The minimum capital requirements for short term and life insurers by 31 December 2016 have been review as follows: Class of business Short Term Insurers Life Assurance Funeral Assurance Current Proposed (USD) (USD) 1 500 000 2 500 000 2 000 000 5 000 000 1 500 000 2 500 000 It has been proposed to review the minimum sum of pension that a trustee can wholly commute from USD360 to USD600 per year. Alternative Trading Platform Companies that are not listed, but have securities, can trade on the Alternative Trading Platform market.
Bond Market Government is considering resuscitating the bond market through the ZSE, allow efficient trading of these bonds as well as improving resource mobilisation for developmental projects. African Trade Insurance Agency To complete the membership process, Zimbabwe is expected to contribute a minimum capital subscription of USD15 million, of which USD5 million will be a grant from African Development Bank and USD10 million from banks and the private sector. Securities and Exchange Commission Penalties It is proposed to amend the Securities and Exchange legislation to allow the regulator to charge administrative penalties that are commensurate with the offences committed. Government finances Rationalisation of the Public Service Cabinet has approved implementation of various rationalisation measures which will unlock savings of around USD14.2 million per month from the 2016 budget which translates to USD170.4 million annual savings. Public Finance Management Government has made significant strides to amend the Public Finance Management Act and Office of the Auditor General with a view to strengthening Treasury oversight of parastatals and local authorities. In this regard, the IMF and World Bank have provided Technical Assistance to the country in the area of strengthening Public Finance Management Systems. Treasury Oversight on Statutory Funds In order to enhance transparency and accountability over Statutory Funds and other Retentions authorised by Treasury, Government is directing all such entities to open bank accounts with the Reserve Bank and transfer all balances to central bank accounts by 31 January 2016 ,failure by an entity to comply with this directive will result in the revocation of retention authority. Public Service Pension Fund Cabinet has adopted the principle of migrating from a Pay-As-You-Go to Defined Benefit Pension arrangement to ensure long term financial sustainability. Public Enterprises Wage Bill Going forward, State owned Enterprises need to observe the golden rule that a maximum of 30% of revenues should be set aside for remuneration, whilst 70% goes towards service delivery. Local Authorities Service Delivery Government requires local authorities to comply with the 30/70% remuneration guidelines in managing human resources costs in councils, along the same lines as state controlled entities inn order to control costs and improve efficiencies. It has been proposed that the initial phase of a prepaid revenue collection arrangements be compulsory for industry, commerce
and low density. It has been proposed for local authorities to develop bankable projects and programmes for financial support through issuance of Municipal bonds. Revenue measures Value Added Tax (VAT) In order to broaden the tax base and also cushion low income households against high prices, it has been proposed to exempt from VAT, goods that include protective clothing, milk, eggs, vegetables, fruits, rice cereals and margarine with effect from 1 January 2016. VAT Fiscalised recording of taxable transactions A Project Monitoring Committee chaired by the Chairperson of the Zimbabwe Revenue Authority is being set up with effect from 1 December 2015, to ensure that installed fiscalised devices are connected to the platform set up by ZIMRA which enables monitoring of transactions real time. Transfer pricing In order to counter base erosion and profit shifting arrangements arising from business transactions between
related parties, it has been proposed to amend the current regulations in order to provide taxpayers with sufficient guidance on the tax treatment of transactions between related parties. This measure takes effect from 1 January 2016. Revenue measures Tax relief measures Rebate of duty on capital equipment It has been proposed to extend a rebate of duty on capital equipment imported by the mining, agriculture, manufacturing and energy sectors, for equipment valued at USD1 million and above, with effect from 1 January 2016. Capital equipment imported under the facility will not be liable to Customs Duty and VAT. Royalty on gold A proposal has been made to introduce a reduced royalty rate of 3% on incremental output of gold using the previous years production as a base year, with effect from 1 January 2016. Since incremental production will only be accounted for by the end of the following year, mining houses that qualify will benefit from the scheme through a tax credit which will be used to pay future tax obligations. Mining fees and charges In order to promote formalisation of illegal mining, marketing of minerals and advance the beneficiation agenda, it is necessary to review further selected fees and charges. The new fees and charges will take effect from 1 January 2016. Tax exemption on long term deposits In order to encourage long term savings, it has been proposed to exempt from tax, interest earned on deposits with a tenure of 12 months. Revenue measures Pension commutation In order to provide relief to retrenched employees who have not yet attained the prescribed retirement age, it has been proposed to exempt a minimum value of USD10 000 or one third of the total value of the pension or annuity up to a maximum of USD60 000. Future pension payouts accruing to these retrenched employees will, however, not benefit from the income tax exemption. This measure takes effect from 1 January 2016. Insurance Value Added Tax on Short Term Insurance
It has been proposed to limit the VAT payable on short term insurance to commission earned on the buying and selling of insurance policies by brokers and agents of insurance and reinsurance with effect from 1 January 2016. Stamp duty on policies of insurance It has been proposed to reduce Stamp duty on policies of insurance in retrospect to USD0.01, with effect from 1 February 2009 to 30 July 2015. Tobacco levy on growers It has been proposed to reduce tobacco levy from 1.5% to 0.75% with effect from 1 January 2016. VAT Zero-rating Soya-bean In support of the continued cultivation of soya bean which is a critical input in the production of cooking oil and stock feeds, it has been proposed to provide relief to farmers through zero rating of soya been for the period 1 February 2009 to 31 July 2012. Revenue measures Offsetting refunds across tax heads It has been proposed to provide for the set off of any tax refunds against tax liabilities assessed on other tax heads through amendment of the Income Tax, Capital Gains, Customs and Excise and the Revenue Authority Act. This measure takes effect from 1 January 2016. Withholding tax on contracts It has been proposed to amend the legislation to enable the withholding agent to recover from the payee, the principal amount that should have been withheld from amounts due to the payee. The recovery ,shall not, however, extend to penalty and interest charges which will remain the responsibility of the withholding agent. The measure is effective from 1 February 2009. Revenue measures Efficiency in tax administration Transit fraud In order to mitigate the adverse effects of transit fraud, Government in collaboration with African Development Bank
will implement an electronic cargo tracking system that uses electronic seals and transmitters to monitor transit cargo. The first phase of the electronic cargo tracking system will be implemented in the first half of 2016. Clearance of goods transported by hired carriers It has been proposed that consignments transported on behalf of third parties be cleared under commercial importations as opposed to private importations, with effect from 1 January 2016. Advance cargo manifests In order to reduce clearance time and also minimise incidences of under or non-declaration of goods, it has been proposed to extend Advance Passenger and Cargo Manifests to road and rail transport carriers. Failure to adhere to requirements of the manifests will attract a fine of not less than USD5 000, payable by the transporter. The measure takes effect from 1 January 2016. Travellers rebate It has been proposed to review downwards the duty free allowance to USD200 per calendar month, in order to complement efforts to resuscitate local industry, with effect from 1 January 2016. Remission of duty It has been proposed to reduce the remission of duty from USD50 per day to USD10 per day with effect from 1 January 2016. Automated verification of travellers for rebate of duty It has been proposed to install by June 2016, an IT system that is capable of timeously detecting the frequency of travel for purposes of the travellers rebate. Revenue measures Parking in Controlled areas Travellers undertaking immigration and customs formalities are allowed free parking space within the customs controlled area for a period of not more than three hours, thereafter a fine of USD2 per hour up to a maximum of USD20 payable or alternatively, imprisonment for a period of not exceeding six months. It has been proposed to remove the limit of USD20 applicable on the penalty of USD2 or each hour or part thereof that the vehicle is parked in excess of the permissible parking time. This measure will apply on customs controlled areas at all Border Posts, with effect from 1 January, 2016. Penalties on Cancellation of Bills of Entry Currently the legislation provides for a fine on cancellation of a bill of entry or amendment of errors arising from initial registration of entry by clearing agencies. It has been proposed to increase the cancellation fee from USD10 to USD50, in order to minimise duplicate entries into ZIMRA ASYCUDA system, with effect from 1 st January, 2016. Alignment of Operating Hours at Kazungula Border Post Currently, operating hours at Kazungula Border Post commence from 8a.m. to 5p.m.; the Border Post in neighbouring Botswana operates from 6a.m to 8p.m.
It is proposed to align the operating hours to those of Botswana at Kazungula Border Post, with effect from 1st January, 2016. Revenue measures Measures in support of the productive sectors Motor industry Duty on Motor vehicles Imported by Government Currently Government has modest protection on a selected range of motor vehicles which includes double cabs, buses, passenger and light motor vehicles. It has been proposed to remove selected motor vehicles and buses imported by Government and School Development Association from the Duty Free Certificate Facility; effective 1 January, 2016. Duty on Canopies and Drop Side Panels It has been proposed to increase duty on imported canopies and drop side panels from 0% to 40%, with effect from 1st January, 2016. Luggage Ware Manufacturers It has been proposed to introduce a manufacturers rebate to approved manufacturers for a period of two years, with effect from 1st January, 2016. Duty free importation will be extended to inputs, which include polyester fabric, lining material, metal, rivets, wheels and sewing thread among others. Agricultural Implements Manufacturers It has been proposed to introduce a specific duty of USDD5 per kg plough beam, with effect from 1st January, 2016. Soap Manufacturers It has been proposed to introduce a specific duty of USD0.50 per kg, with effect from 1st January, 2016. Textile Industry It has been proposed to increase duty on selected fabric that can be produced locally from 10% to 40% plus USD2.50 per kg, with effect from 1st January, 2016. Clothing manufacturers rebate It has been proposed to extend the rebate of duty on imported raw materials for use in the manufacture of clothing by a further period of two years, effective 1st January 2016. Revenue measures Clothing manufacturers rebate It has been proposed to extend the rebate of duty on imported raw materials for use in the manufacture of clothing by a further period of two years, effective 1 st January 2016.
Tourism industry Rebate of duty on capital goods imported by tourism operators It has been proposed to extend the rebate of duty for a further period of two years, with effect from 1 st of January, 2016 Suspension of duty on motor vehicles imported by Safari Operators In order to consolidate the gains achieved within the industry, it has been proposed to extend the suspension of duty facility for a further period of two years , with effect from 1 st of January, 2016. Suspension of duty on wheat flour In order to encourage the local beneficiation of wheat, thereby promoting the local milling industry and manufacture of stock feeds, it has been proposed to extend the suspension of duty on wheat flour for a further period of twelve months and reduce the wheat flour quota from 5 000 to 4 000 metric tonnes per month, in line with utilisation capacity of approved importers with effect from 1 st January, 2016. The facility will cease to apply after 31 December 2016. Suspension of duty on powdered milk imported by approved manufacturers In order to promote growth and development of the local dairy industry, it has been proposed to extend the ringfenced duty free importation of milk powder to approved dairy processors by a further two years and to register new dairy processors under the suspension of duty on powdered milk facility with effective 1 January, 2016. Revenue measures Other administrative measures Fines on traffic offences It has been proposed to review the level of road traffic fines to begin from level 2 and end at level 4 of the standard scale of fines, with effect from 1st January, 2016. Level of Scale 1 2 3 Type of Off ence Double Parking No stopping, no parking, no left or right turn Leaks of fuel and oil Discard rubbish from vehicles
Spitting in or from vehicles Fail to signal slow down, stop or turn right or left Cutting corner or turning right Encroach over white lines at arobot Proceed against amber robot Abusivebehaviour Proceed against red robot Overtaking over solid whiteline No Drivers Licence Foot brakenot working Current Proposed Proposed Fine Fine Level of (USD) (USD) Scale 5 10 2 10 20 3 20 100 4 Revenue measures Excise duty on second hand vehicles
To promote transparency in the determination of exercise duty and ease administrative burden on ZIMRA, it has been proposed to introduce flat rates of excise duty as follows: Number of Years 0 4 5 10 11 15 16 20 Above 20 Proposed Excise Duty Rate (USD) 1 000 cc 300 1 001 1 500 400 1 501 2 000 500 2 001 2 500 600 2 501 3 000 600 3 001 3 500 600 Above 3 501 600 1 000 cc 150 1 001 1 500 200 1 501 2 000 250 2 001 2 500 300
2 501 3 000 400 3 001 3 500 400 Above 3 501 400 1 000 cc 75 1 001 1 500 100 1 501 2 000 150 2 001 2 500 200 2 501 3 000 200 3 001 3 500 200 Above 3 501 200 1 000 cc 50 1 001 1 500 75 1 501 2 000 100 2 001 2 500 150 2 501 3 000 150 3 001 3 500 150 Above 3 501 150 All Engine Capacity 50 Engine Capacity