Last month I finally had to throw in the towel. I called together the workers’ committee who represent the labour force and told them that I couldn’t find enough local dollars to pay them and from now on it would have to be US dollars. They tried hard not to show their delight and failed, dismally.
The government likes to claim it has stabilized the Zimbabwe dollar that had officially slumped to about 530 to one US dollar last month. They have even gone so far as to issue punitive fines on those organizations trading at unofficial rates which can be around 800:1 or higher. Indeed, local dollars can now be bought for as little as 700:1, if they can be found at all. That very little needs to be paid for in Zimbabwe dollars is no doubt preventing the local dollars gaining more. My business has steadily been taking in more and more US cash over the last 6 months to the extent that my time spent going through the bank statements at the end of the month is now only a couple of hours.
The government also displays considerable ambiguity to the currency it is supposedly supporting. Imports are taxed at a rate of 700 local dollars to the US dollar, no doubt to encourage importers to use the US currency. Export remittances paid back to Zimbabwe are “taxed” by the government which takes 40% of the hard cash and then pays the exporter back in local money at the official rate which means the exporter is losing 25% of the hard-earned forex. Internal foreign currency transactions are deducted 20% under the same system, and yes, the money I withdrew from my account shown above was taxed 3%. Curiously the small denomination notes are all issued new. I’d been hoping to get some 1s but my bank didn’t have any in stock.
Marianne and I are going to the UK on Sunday for three weeks. It’s always a bit of an exercise in anxiety in what can go wrong whilst I’m away but it’s been four years since we got to the UK and the break is needed.
Yesterday I got a call from one of the foremen saying that one of the borehole pumps wasn’t working. Fortunately there’s a business park some 10 minutes from my work that has an irrigation company and three visits later with an unnecessary purchase of a pump controller, it was determined that the motor was burned out (the pump controller should have protected it but failed to do so) and it was pulled out the ground and changed. Marianne remarked drily that “at least it didn’t happen next week”. Indeed.
A friend has the estimated wages, in US dollars of course, which he will drop off when the clerk tells him an updated breakdown. The wages package was written by me and although I’m not and exceptional programmer I do take pride in designing software that’s intuitive to use. Emergency phone numbers have been listed and fingers will be crossed. We will be taking our full currency allowance of 2,000 US dollars each with us – nobody outside Zimbabwe has use for our currency either.
Zimbabwe Absurdity 
Taxed if you do, taxed if you don’t
27 06 2022Zimbabwe’s dollar is crumbling for the second time. It last fell off the charts in 2008 so you’d think our finance ministry would know better. Apparently not. Inflation in local dollar terms is back in triple digits and, like the rest of the world, inflation in real money is also a problem – but one we can live with. The real problem is tax.
Given the problem with the local currency the reader would be correct to assume that those who can export products to bring in hard currency would do so (the breakfast bowl of fruit above were probably not export grade but they were delicious!). However, keeping the fruits of one’s labour is a bit more difficult. The government takes 40% of these export earnings and pays back the exporter in Zimbabwe dollars at the official exchange rate. As things stand the official exchange rate is around 360 Zimbabwe dollars to one US dollar whereas the unofficial rate, the one nearly everyone uses to price what you see in the shops, is about 650:1. So exporters are losing about 20% of what they get in as hard currency. If they then use this hard currency in an electronic transfer the receiver is also subject to handing over a portion, in this case 20%, to the government at the official rate.
One doesn’t have to be an exporter to have a Foreign Currency Account (FCA). My company holds one and I have received US dollars into it for some time now from a company for whom I grow gum tree seedlings which will, when mature, be cut for firewood for curing tobacco. They get US dollars in the form of a levy from tobacco exports. Yes, I can even go to the bank and draw out the money as cash though again there is a 3% levy on this which the government takes. Naturally people prefer cash deals which are not then banked though there is only so much one can “hide under the mattress”. Safe deposit boxes are a preferred option to the former but at the moment they are at a premium.
These FCAs also existed under the Mugabe regime but on two occasions during our hyper-inflationary period of the local currency they were raided by the central bank and the owners were paid out in Zimbabwe dollars which very quickly became worthless. The inflation in October 2008 was estimated at 4.3 million percent for that month. This is not so long ago that people have forgotten and there is a steady queue of customers in my local bank withdrawing hard cash, risks and levies notwithstanding.
Of course not all transactions require US dollars. The local currency is still used and indeed, the government has stipulated that customers must be allowed to use it if they want. Of course everybody makes it very attractive to pay in US dollars by offering a rate heavily stacked against the Zimbabwe dollar. One hardware outlet is well known for offering a discount on top of this, so they can say to any inquisitive official that they are using the official rate, but only if you actually ask the checkout person.
VAT is not particularly high at 14.5%. However, transactions over 500 Zimbabwe dollars (less than a US dollar) attract a tax of 2%. A number of transaction types are not taxed. These include tax payments (what, no tax on tax?), wages, insurance payments, medical aid payments and various others. One bank I deal with has a comprehensive list of non-taxable transactions, the other has a very short list for no reason that I can discern.
The Zimbabwe banking system is surprisingly sophisticated in some respects and dismal in others. Everything can be paid for online, taxes, transfers, insurance, social security. It doesn’t all work very well though and as a part-time programmer I am constantly irritated by lazy design and weak code. It is even possible to buy car licences online and the government can see from a database that one’s vehicle insurance is up to date. The paper discs for display on the vehicle are then delivered by courier to one’s address which rather spoils the efficiency.
Like nearly everywhere else in the world we have been affected by the Ukraine/Russia war. At the beginning of the year fuel was around US$1.25 per litre (it is ONLY available in US dollars!). Now diesel is $1.87 per litre and about 40% of that is government taxes and levies. No small wonder that inflation is running rampant. I saw a Reserve Bank announcement last week that the Zimbabwe dollar lending rate had been increased to 200% in an attempt to block speculative borrowing. It will have little effect – you read that here.
I have been paying my staff in a mix of local and US dollars for some time now. This month they approached me to increase the US dollar proportion. It wasn’t difficult to say yes given that my local currency accounts will hardly cover my own salary let alone their wage. Clearly they don’t have faith in the local dollar, unlike the President who is insisting it’s here to stay. For those with a bit of time on their hands try typing this into Google: “zimbabwe multi currency system to stay herald” (exclude the quotes). It’s farcical. Note that The Herald is the government-owned newspaper, so it parrots the state line.
Comments : 4 Comments »
Tags: tax
Categories : Agriculture, Business, Social commentary