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Economists Warn Zimbabwe Will Lose Revenue If Full Re-dollarisation Is Adopted

Economists Warn Zimbabwe Will Lose Revenue If Full Re-dollarisation Is Adopted

Economic specialists have warned of an increased risk of major revenue loss due to the growing use of the U.S. dollars as the Zimbabwean economy moves towards full “re-dollarisation”.

According to economics professor Gift Mugano, the trends in the re-dollarisation have “deepened” as domestic sales in US dollars are now close to 80%, The Herald reported.

With the bulk of the transactions reportedly being in cash, they are seen as favouring tax evasion. 

Prof Mugano claims that since most transactions are cash-based, re-dollarisation would be “detrimental” to the government’s efforts to collect taxes as a result of the high level of economic informality. He told Business Weekly in an interview:

The risk comes with the potential loss of fiscal revenue on the backdrop of informalisation of the U.S. dollar sales.

A snap survey I did shows that companies are facing exchange rate loss of 15 – 17 percent on the back of the 2 percent IMTT, bank charges and 20 percent export retention. The losses emanating from export retention, in particular, are arising from the existing disparities between the official exchange rate and black market rates. 

Based on this observation, the temptation is very high for businesses that collect cash not to deposit it in the banks thereby narrowing the tax base. This is why you hear about thousands of dollars being raided by robbers at business premises.

According to Mugano the policy matrix of the 20% domestic export retention and the 2% IMTT “does more harm than good and must be scrapped.”

He urged technocrats at the ministry of finance and the central bank to conduct an academic study on the benefits and drawbacks of the 2 per cent IMTT and the 20 per cent export retention.

Carlos Tadya, an economist from Harare, agreed with Mugano and said the business is already overtaxed and the transition to re-dollarisation opens up opportunities for tax avoidance.

The Minister of Finance and Economic Development, Professor Mthuli Ncube, issued a warning last year that the re-dollarization of the economy and the high level of informality would reduce the tax base because the majority of transactions were “going underground where the majority of activities are cash-based.”

The government approved the usage of foreign currency for domestic transactions in March 2020.

Last year, the Government enacted legislation to entrench the multi-currency system, which makes both the United States and Zimbabwe dollars legal tender for all local transactions until 2025.

The majority of people and businesses prefer using foreign currency over the Zimbabwe Dollar as the latter has been depreciating at a quicker rate.

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16 Comments

Patriot 2 weeks ago

Let's use our own currency like what the rest of the countries are doing in SADC. With the currency that we can control like what our neighbouring countries are doing, our economy will improve certainly. There is no country under the sun that will grow using other people's currency. Never!


Super Patriot 2 weeks ago

but the gavhu must have clear coherent policies and start living within their means and bring corruption by the big fat cats to book

Knorard💚🌻 2 weeks ago

You are using economics theories hence your are right but think about what exactly can strengthen the value of another countries currency .Mr Mari haifuridzirwi nemuromo kuty ite power wanzwa. Our exports are very low than imports simple.....

1 week ago

We are a failed State,and a military state as well;Brother where the abnormal is the norm.

ExPatriot 2 weeks ago

Mune currency here munyika yenyu comrade iwo mabond paper musataure ngamusina kuswera


super patriot 2 weeks ago

we need an independent currency board and the independence of the apex bank before we have a proper currency

Dispenser 2 weeks ago

Those who were depending on corruption, thru uncontrolled printing of zim dollar are finding it difficult to cope with e current situation, bz ey are not business people but fraudsters..


2 weeks ago

Ndokuti murume ukasadarika neikoko hapana


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Manikiniki 2 weeks ago

This gvt full of old tired people will never resuscitate this economy. They have tried their coercive tacticts to make people accept Bond paper as a legitimate currency only for them to realize that they cannot rig the economy and have "allowed" the use of forex in domestic transactions again. They are just clueless but because they are "eating" they will always cling to power and use all the means to stay there even if it means shooting unarmed civillians at "45 degrees"


xxxx 2 weeks ago

Mr Economist ndiani wamunoda kuti apiwe Bond imi munoada here maBond to be fair imi motora henyu maUSA vamwe Bond?


Ajuja ajaji 2 weeks ago

His argument is that " if the govt adopts the USD as the sole currency, most transactions will be done as cash transactions... the govt wont be getting all those taxes hence it will struggle" The govt is bankrupty and its trying to make ends meet by heavily taxing us


New Dispensation 2 weeks ago

The past 4 and half have yielded nothing

ZUPCO One step forward two steps back
Zim dollar one step forward hundred backwards
Higher Education
Primary and Secondary Education


Siyoyo 1 week ago

how many zim dollars we used from 1980? ko anoda kushandisa local currency ndiani, why? vanoda ZWL shandisai mega ini ndinoda US$


Vesto 1 week ago

Interesting.

I have lost count.
From the original ZW$ of 1980, via the various zero deletes, through Bearer cheques, Agro-Dealer cheques, to Bond notes, RTGS, ZWL$... Eish, Banana Republic chaiyo.

BaNicanor 1 week ago

munotuwanepiko tuma Economist twenyu


kkkkk 1 week ago

ko surplus uya ndobuda rayoka rekugqdzirisa zvinhu. yakaendepi



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