Xenophobic Tax Legislation scares remaining foreign Companies

Zimbabwe is imposing an additional tax burden on foreign-owned companies after new Indigenisation Minister Patrick Zhuwao said the proposed 10% empowerment levy to fund indigenisation and economic empowerment would be raised to 12.5% in 2017.

Foreign-owned companies in Zimbabwe are already burdened by the requirement to cede 51% majority shares into the hands of black Zimbabwean groups. Zimbabwe also has a higher taxation framework compared to its peers in the region, with analysts saying this has made it uncompetitive in attracting foreign direct investment.

Now the government of President Robert Mugabe, which is battling to lift the country out of its economic doldrums, is set to add more tax burdens. Zhuwao said on Tuesday evening that the empowerment levy will raise US$93m in 2016 to fund the cash-strapped National Indigenisation and Economic Empowerment Fund.

“The board is empowered to institute an empowerment levy. It is proposing to put a levy of 10% on all corporate entities in Zimbabwe. However, they are proposing to put a discount based on the extent to which the company is indigenous,” said Zhuwao.

He said if a company is 100% locally owned, it would get a 100% discount on its payment of the levy. It appears the levy is aimed at compelling foreign-owned companies to comply with the indigenisation policy which has been criticised for driving away foreign direct investment.

“We are likely to raise $93m and that money will be channelled to the 61 registered community share ownership trusts,” said Zhuwao, adding that the new tax will be levied on companies’ gross revenues.

Impala Platinum, Aquarius Platinum, Anglo American Platinum, Standard Bank, Standard Chartered Bank, Barclays and Pick n Pay are among the foreign companies that have units operating in Zimbabwe. Zimbabwe is currently reviewing indigenisation deals signed by South African platinum mining companies – Anglo American Platinum, Impala Platinum and Aquarius Platinum – in the past three years.

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