Zimbabwe’s Government has introduced the 2% tax on foreign currency transactions.
This was announced by the country’s Finance Minister Mthuli Ncube on Thursday during the 2020 Mid-Term National Budget Review.
The move by Ncube to tax foreign currency comes at a time when Government introduced a Covid-19 allowance for civil servants and pensioners. Individuals in the civil service sector will get US$75 whilst pensioners will get US$30. The allowance is yet to be paid with civil servants having received the 50% salary increase in local currency.
He also more than doubled the tax-free threshold from $2 000 to $5 000 so disposable incomes of the lowest paid remain untaxed. Regarding this Ncube said:
In an effort to cushion workers from bracket creep, a phenomenon whereby previously untaxed employees become liable to tax due to inflation-induced wage and salary adjustments, Government reviewed upwards the tax-free threshold to $2 000 per month and accordingly adjusted the tax brackets. However, prevailing market conditions have necessitated further review of employee salaries and wages. In order to minimise the tax burden, and also enhance disposable income, particularly during this period when a sizeable number of households are yet to recover from the effects of the Covid-19 lockdown, I propose to review the tax-free threshold from $2 000 to $5 000 per month. further propose to adjust the tax bands to begin at $5 001 and end at $ 100 000, above which the highest marginal tax rate of 40 percent will apply, with effect from August 1, 2020.
The transaction tax measures are also effective from next month.
While the move to exempt low income earners from taxation has been lauded, Ncube has been criticised for ending the exemption from this tax on payments in and out of Nostro foreign currency accounts.
Ncube further tempered this with a tax threshold of US$5 on foreign currency transactions, so small payments remain untaxed.
For foreign currency payments, the maximum tax was set at US$ 2 000, payable on all transactions over US$100 000.