Finance Minister Mthuli Ncube has announced a significant change to Zimbabwe’s monthly tax-free income threshold. The new threshold is set at Zimbabwe Gold (ZiG) 1,356, which is approximately US$100. This adjustment is outlined in Statutory Instrument (S.I.) 74 of 2024 and is part of the government’s response to the ongoing economic fluctuations. It also addresses the recent transition to the new currency, the ZiG, which officially replaced the Zimbabwe dollar (ZWL) on April 5, 2024.
The Zimbabwe dollar was devalued by a significant amount, with a depreciation of 261.28% in the first quarter alone. This made the previous tax-free threshold of ZWL 750,000 grossly inadequate against the backdrop of rising living costs. By the end of the quarter, it translated to merely US$28.39. At the start of the year, this amount was equivalent to nearly US$74, highlighting how rapidly the currency’s value deteriorated.
The implementation of the ZiG aims to stabilize the economy and simplify the complexity brought by hyperinflation and currency devaluation. By recalibrating the tax threshold, citizens can be buffered from the immediate impacts of these economic challenges. The new tax-exempt amount reflects a more realistic living standard, pegged around US$100.
The new tax schedule is also part of this statutory instrument. For the remainder of the year—from April 5 to December 31, 2024—the following tax brackets will apply:
– Earnings from ZiG1,356.01 to ZiG12,204 will incur a tax rate of 20%.
– Earnings from ZiG12,204.01 to ZiG36,612 will face a 25% tax rate.
– Those earning ZiG36,612.01 to ZiG122,040 will be taxed at 30%.
– Incomes ranging from ZiG122,040.01 to ZiG244,080 will attract a 35% tax rate.
– Earnings above ZiG244,080.01 will be subjected to a 40% tax rate.
In monthly breakdowns, this translates to:
– ZiG1,356.01 to ZiG4,068 for the 20% tax bracket.
– ZiG4,068.01 to ZiG13,650 for the 25% bracket.
– ZiG13,650.01 to ZiG27,120 for the 30% bracket.
– ZiG27,120.01 to ZiG40,680 for the 35% bracket.
– Above ZiG40,680.01 for the 40% bracket.
These adjustments are crucial for aligning the tax system with economic realities, especially given that Zimbabweans are grappling with high inflation rates and a fluctuating economy. The government’s proactive approach in adjusting tax thresholds aims to alleviate some of the financial burdens faced by the populace, ensuring that taxation reflects current economic conditions and the capacity of the citizens.
Further insights into the effectiveness of these tax adjustments will likely come once the Zimbabwe National Statistics Agency releases the upcoming consumer statistics. These data will provide a clearer picture of whether the new income tax brackets are suitably aligned with the current cost of living and how well they meet the needs of Zimbabwean taxpayers during this period of economic transition.
The broader implications of these changes on Zimbabwe’s fiscal stability, inflation control, and economic recovery remain to be seen. As the country navigates these changes, the role of such fiscal policies in stabilizing the economy and promoting sustainable growth will be critically observed by both national and international stakeholders.
Source: Newsday
