Govt To Review High Retrenchment Taxes

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By Alois Vinga

FINANCE Ministry secretary George Guvamatanga says the government is committed to reviewing exorbitant taxation thresholds charged on current retrenchment packages ahead of the 2022 National Budget statement in a development aimed at protecting affected workers’ earnings.

The pledge comes in response to a letter ‘from the Zimbabwe Banks and Allied Workers Union (ZIBAWU) bringing to the Treasury’s attention that employees receiving their retrenchment packages in US dollars are paying more tax than those earning the local currency.

The banking workers union said the current amount of a retrenchment package exempt from taxation was the greater of $50 000 or one-third of the retrenchment package up to a maximum of $240 000 is exempt or the greater of US$3 200 one third of the retrenchment package up to a maximum of US$15 100 is exempt.

“Further and acknowledging the current bank rate which is pegged at US$1 against $85 if the Zimbabwe dollar tax-exempt amount is converted to US dollar, the amounts will be equivalent to the greater of US$588,23 or one-third of the retrenchment package, up to a maximum of US$2 823,53 is exempt,” ZIBAWU said.

“Given the above, it is clear that the current tax-exempt amount for employees earning in the Zimbabwe dollar is low compared to their counterparts earning US$.”

The union said the compressed tax-exempt amount for employees earning in local currency has resulted in high taxation and as a result, the final payout packages are now insignificant.

“It is our humble submission that the employees are already suffering from the current salary erosion due to the austerity measures and wage compression. The prevailing tax regime is not only punitive for retrenched employees but also anti-social considering low prospects of alternative employment.

“We call upon your ministry to cushion them by offering some tax relief for a certain period as a social benefit for this loss of employment in these trying times. Another option would be to increase significantly the amount from tax so as to reduce the taxable burden.

“We hope that you take these measures on board and primarily change the current formulae with effect from January 2021 so as to alleviate the plight of the recently retrenched workers,” the union pleaded.

However, in responding to the request, Guvamatanga agreed to consider the matter in the forthcoming budget.

“Treasury acknowledges the high tax burden on retrenchment packages. A review of the tax-free threshold on retrenchment payouts will go a long way to provide relief to retrenches, most of whom will seek to utilise the retrenchment package as start-up capital for self-help projects,” he said.

“In this regard, I wish to advise that Treasury undertakes to review the tax-free portion of packages within the context of the 2022 National budget.”