Zero Pindula

WhatsApp Message

*"RBZ's ZiG Currency Defence Plan Misguided"*

*Follow Pindula on WhatsApp for daily new updates*
https://whatsapp.com/channel/0029Va84dngJP21B2nWeyM3v?qo

The Confederation of Zimbabwe Industries (CZI) has dismissed the Reserve Bank of Zimbabwe’s latest proposal to defend the Zimbabwe Gold (ZiG) currency, calling it misguided.

RBZ Governor John Mushayavanhu told the Zimbabwe Independent that the government had approved the central bank’s plans to compel companies to pay 50% of their corporate tax in ZiG, with the remaining 50% in foreign currency, to boost demand for the local currency.

----------
itel A70 256GB
$99USD

WhatsApp: https://wa.me/+263715068543
Calls: 0772464000
----------

However, a comprehensive 12-page analysis by CZI, conducted before the ZiG’s depreciation and subsequent 43% devaluation, reveals that companies were already reporting significant losses, making it unlikely that corporate tax payments would stimulate demand for the currency.

Instead, CZI proposes an alternative solution in its report, “Inflation and Currency Developments Update and Review of the Mid-Term Monetary Policy Statement”, suggesting that Pay As You Earn (PAYE) could be used as a basis to drive demand for ZiG. Reads the report:

> Corporate tax is currently the worst-performing tax head in terms of overall tax contribution. Thus, selecting such a tax head as the basis for the demand for ZiG is bound to have very little traction.

> Government needs to be bold enough and select a performing tax head, such as PAYE as the basis for the requirement to pay 50% in local currency.

> It is not expected that the inflationary pressures will (taper) within the short term unless these measures aimed at creating demand for local currency are enhanced beyond the current QPDs (quarterly payments dates) as most businesses are in loss positions and hence remain unaffected.

PAYE is a system that is used to calculate how much from your gross earnings your employer is going to deduct to pay the Zimbabwe Revenue Authority (ZIMRA) Income Tax on your behalf.

According to ZIMRA’s first-half data, corporate tax collections fell short of targets by 14%. The revenue authority attributed this shortfall to the competition from the informal sector, which is estimated to dominate a staggering 72% of the economy. The CZI added:

> While the requirement to pay QPDs in local currency was a positive step, for most firms the ZiG that they get from the surrender requirements is more than enough to settle their QPDs as profitability has significantly shrunk as businesses try to remain competitive.

> The depreciating ZiG on the parallel market has a risk of causing long-lasting inflationary pressures unless it is controlled.

> Controlling the parallel market exchange rate can be achieved by enhancing access to foreign currency by a wider market.

> However, given that currently there is not enough foreign currency for every possible importer, there is need for policies to continue to prioritise demand for the local currency.

The CZI urged the central bank to intensify its efforts to curb the parallel market premium, which is exerting upward pressure on prices and undermining economic stability. It said:

> The parallel market premium should be among the critical variables which the RBZ should be seeking to contain.

> The widening parallel market premium was not acknowledged (in the August 30 monetary policy) as a problem, even though it has a key role in destabilising prices and, hence creating inflationary effects.

> As already mentioned, the premise that the exchange rate is stable could be the undoing of the monetary policy, as the parallel market exchange rate has a role in influencing market behaviour.

> Currently, the market has rejected the official exchange rate as market driven hence the parallel market is again considered as the market rate and already used in service and product pricing.

> The adjustment of US dollar prices in formal retail shops to very high levels compared to the informal sector is an indication that the exchange rate – induced distortions are already fully at play.

> The RBZ should prioritise achieving alignment between parallel and official exchange rates by allowing banks the flexibility to set exchange rates based on the price expectations of willing sellers.

> The RBZ can intervene strategically to maintain market stability and orderly trading conditions.

More: Pindula News

_If you found this article useful_
*Please support Pindula by forwarding to friends and groups*