Zimbabwe industry has called for central and local government to give the foreign exchange auction an opportunity to operate efficiently by levying taxes and fees in local currency to create demand for the Zimbabwe dollar.
The call by industry to entrench the use of the Zimbabwe dollar as the anchor currency comes as the economy has seen increased usage of the US dollar in transacting, including Government payment of allowances, collection of levies, taxes and fees and informal and fuel sectors, wages and salaries, large supermarkets, medical services, educational services.
Confederation of Zimbabwe Industries (CZI) says, “levying taxes in local currency should increase demand for the local currency and this should have positive effects on the exchange rate and inflation.”
The Reserve Bank of Zimbabwe introduced the foreign exchange auction system in June after an unsuccessful use of the interbank and the fixed-rate regime, which had been adopted in March to ensure price stability following the outbreak of coronavirus.
In a research note on the June inflation, which saw the annual rate dropping from 785,6 % in May 2020 to 7373, the Confederation of Zimbabwe Industries (CZI) said the tax on income and profits contributes 32 %, VAT 23 % and taxes on financial and capital transactions 13 %.
Zimbabwe dollar tax revenue constitutes 97% of total revenue and levying value-added tax (VAT), pay as you earn (PAYE) and income taxes in local currency should go a long way in creating demand for the local currency as taxes contribute significantly to revenue.
The business community, CZI said, is still a little sceptical about the sustainability of the foreign exchange auction market, given the currency ambiguity obtaining in the economy.
As a result of Covid-19, some businesses are not sure if they will be able to resume operations after the lockdown due to cash flow difficulties and subdued demand. Uncertainty is heightened by persistent policy reversals.