biti presenting budget.jpgEconomic analysts say the immediate upward review of the tax-free threshold is critical in stimulating demand and enhancing savings on the local market.

The current tax-free threshold of US$175 has restricted workers from spending due to lack of disposable income after taxation, a situation which has seen labour calling for a tax-free threshold of around US$250.

 

As one of the tax framework recommendations for the forthcoming 2011 national budget, economic analyst, Mr. Kipson Gundani, has called for a marginal adjustment on the tax-free threshold to give spending power to the majority who are earning below the US$475 Poverty Datum Line.

 

“We acknowledge that at US$175 the threshold is still low. However, caution must be taken in order to strike a balance between enhanced fiscal space as well as improving spending. The adjustment should, in my view, be gradual and must be in line with civil

servants salaries,” said Mr. Gundani.

 

Another economic analyst, Mr. James Wadi says while a respite in tax is welcome, there should be a balance with the need to maximize on revenue collection given the fact that government is operating on a tight budget.

 

He said: “We recognise the difficult task the minister has, but at the same time there is need to boost spending. While there has been gradual relaxation from US$150 to the present US$175, something within the region of US$250 will be welcome.”

 

The country, which is still emerging from a decade long economic downturn owing to sanctions, is still faced with subdued savings and demand due to liquidity constraints and lack of disposable income.

 

On the other hand, the fiscal authority is being forced to rely on domestic sources in the absence of external support. Individual tax for the first half of the year contributed around 18% of the total revenue which amounted to around US$900 million.

 

The local labour market is anxiously waiting for the forthcoming 2011 national budget to find out how the fiscal policy will address their challenges.