ZSE hits the brick wall of the capital tax lobby

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ZIMBABWE Stock Exchange (ZSE) call for removal of punitive 40% capital gains tax imposed on traders who sell shares less than 180 days after acquisition has fallen on deaf ears , fearing that the move could make the exchange less attractive while threatening future listings.

Capital gains tax is a levy on the profit an investor makes from the sale of an investment such as shares.

In May this year, the government introduced this among a cocktail of measures designed to curb what it called market indiscipline which has wreaked havoc on the exchange rate, with the Zimbabwean dollar rapidly losing value by against the greenback, severely eroding disposable income.

Initially it was 270 days, but the government has since lowered it to 180 days.

But ZSE chief executive Justin Bgoni told businessdigest last week that they were running into brick walls pushing for the removal of the tax enacted by Statutory Instrument (SI) 103A.

“We lost the case and the government says the tax remains, but that makes the ZSE unattractive and there is no doubt that the government is against trade within six months. Unfortunately for us, as an exchange, we want to trade as much as possible because price discovery is better. On VFEX (Victoria Falls Stock Exchange), there is no capital gains tax. The challenge is on the ZSE. The government has informed us that they are doing this to curb speculation and protect the Zimdollar currency. That’s why we keep pushing but for now it’s the law,” Bgoni said.

The ZSE boss said there was hope that will change when Finance Minister Mthuli Ncube presents the 2023 national budget later this month.

“Of our budget proposals, the one on the removal of capital gains tax on ZSE is key. We want this removed. It will help us a lot,” Bgoni said.

The government has argued on several platforms that the malfeasance of stockbrokers on the ZSE stock exchange was part of illegal and speculative activities that fueled the depreciation of the Zimbabwean dollar through the transfer of funds between brokers’ sub-accounts. .

While Bgoni remained bullish on the Victoria Falls Stock Exchange (VFEX), the sentiment is different for ZSE.

“Over the next couple of months we will be watching the 40% capital gains tax that has been enacted and believe it will drag the market down. On ZSE, we are not optimistic. We remain optimistic on VFEX. It may take a while, but we like the way we are going. If you have noticed that there have been days when turnover and transactions on VFEX have increased,” Bgoni said.

Normally towards the end of the year companies and individuals set their goals for the coming year, but the ZSE boss says the 40% capital gains tax is an albatross on the local stock exchange.

Bgoni said he would continue to engage policymakers on the issue while warning that this punitive tax could also threaten real estate investment trusts (REITS).

“Then there are changes that we would also like on REITs. We are waiting for the FPI’s first listing on November 23, 2022, and we hope it will work out, but the 40% tax overshadows everything,” Bogni added.

The government had mistakenly adopted in the law 4%, instead of 40%.

But by his admission, however, the government has ordered the market to apply the 40% capital gains tax but it will not be deducted as the correction is being implemented.

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