Business calls for budget review, citing competitiveness concerns

Businesses Reporter

BUSINESS players have called on the Government to consider reviewing some of the proposed measures announced in the 2025 National Budget, which they believe will erode competitiveness and drive the cost of production high if not addressed.

In the 2025 National Budget, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube proposed a number of new measures, whose impact manifests differently across economic sectors.

The budget is underpinned by a projected growth rate of 6 percent. This anticipated strong economic performance is expected to benefit from the recovery in the agriculture sector (12,8 percent), electricity generation (10,6 percent), information technology (9,9 percent) and mining (5,6 percent).

Following presentation of the estimates, the Parliamentary Portfolio Committee on Budget, Finance and Investment Promotion met with different business stakeholders in order to get feedback on the budget.

According to a report by the committee, the Confederation of Zimbabwe Industries (CZI) expressed concern over the reduction of the degree of export orientation from 100 percent to 80 percent for manufacturing companies under special economic zones, as it will be difficult to penetrate the export market due to high costs of production.

“The proposal is that the degree of export orientation be further reviewed down,” reads the report.

CZI is also of the view that the 25 percent tax on rental income is too high, as there are other costs to be met by property owners, for renovations and maintenance, among other things.

The industry representative body said the Government should ensure that the tax is applied on net rental income, as opposed to gross revenue from rentals.

CZI further submitted that intermediated monetary transfer tax (IMTT) applies to the whole value chain, resulting in up to 10 percent additional costs to products.

“Local products are thus priced relatively higher than regional products, thereby undermining country competitiveness. This is cognisant of the fact that the African Continental Free Trade Area (AfCFTA) opened up to regional competition; hence there is a need to extend relief to industries where they would have demonstrated factors that negatively impact their products,” noted CZI.

Economist Mr Tinevimbo Shava agrees.

“It seems small at face value but huge with volumes, which then adds to the cost of production. Resultantly, the manufacturers then push the tax to consumers,” he said.

He added that such a tax is a punishment to those who abide by the laws of the land, mostly formal businesses.

“Importers and smugglers offer competitive prices because they are buying from people without that extra cost in their jurisdictions. So, the Treasury should at the very least review to abolish the tax on raw materials and keep it on other transactions,” said Mr Shava.

The Confederation of Zimbabwe Retailers (CZR), on its part, proposed the removal of the proposed tax on fast foods and sports betting winnings, as it seems to target the poor.

It said there are a number of taxes levied on the purchase of food, such as VAT and IMTT, and the proposed fast-food tax would further burden the poor.

“Such taxes need stakeholder consultations before they are introduced,” said CZR.

The retailers’ representative body noted that the cost of doing business is relatively too high and needs to be addressed to enable companies to be competitive in view of the operationalisation of AfCFTA.

It noted that the dollarised sector is more thriving than those transacting in the local currency, Zimbabwe Gold (ZiG).

The organisation emphasised the need to strengthen the local currency, and for the Government to promote more use of ZiG for its services.

The CZR pointed out that the formal retail sector is on the brink of collapse due to over-regulation and unfair competition from the informal sector.

“There is a need to support the clothing sector by addressing smuggling of second-hand clothes and removing duty on fabric meant for local production.

“In addition, more support is needed for local companies like Edgars, which play a pivotal role in formalising the informal sector through contracting small-scale informal sector players to supply key services on condition that they are tax-compliant,” CZR said.

CZI economist Dr Conelious Dube said the high cost of compliance is eroding companies’ profits and incentivising informalisation; hence the Government should do more to encourage formalisation.

“Profitability for companies has been falling while economic activity is still high.

“This is a result of the high cost of compliance, which is eroding profits while high informality is eroding market shares,” he said during a recent 2025 post-budget breakfast meeting organised by Business Weekly.

Minister Ncube has since indicated that the Treasury may review its position on some of the taxes contained in the 2025 National Budget proposals to address certain concerns raised by captains of industry and commerce.

He said in some instances, the Government was already undertaking studies to see the impact of certain taxes on businesses.

“We have directed the Treasury to do a study on the impact of the intermediated money transfer tax on businesses, and we are ready to review based on the results of the studies.

“Therefore, I encourage more businesses to come forth with their submissions on the impact of the IMTT. We have January and the midterm policy review, where we could make some adjustments based on actual facts on the ground,” he said.

The Chamber of Mines of Zimbabwe noted that the budget came at a time the mining industry is operating below its potential on the back of a challenging environment, characterised by weak commodity prices, foreign currency shortfalls, capital shortages and fragile power supply.

“Coupled with a high-cost structure, on the backdrop of high royalty and taxes, high electricity tariffs, exchange rate losses and high cost of funding mining projects, the viability of mining companies has been severely compromised,” it said.

It added that these challenges have combined to weigh down on the performance of the mining industry, with mineral revenue coming down significantly and mining companies struggling to meet their production targets.