Zimbabwe’s ZiG poised for strength amid rise in corporate tax payments – The Zimbabwe Mail

Harare, Zimbabwe – The Zimbabwe Gold (ZiG) currency is set to strengthen against major currencies in the official market, driven by a surge in demand as companies prepare to meet their quarterly corporate tax obligations.

In Zimbabwe, companies must pay taxes quarterly, with deadlines on March 25, June 25, September 25 and December 20. A recent government directive requires companies to pay half of their tax obligations in ZiG and the rest in US dollars.

The Reserve Bank of Zimbabwe (RBZ) reports that the Zimbabwe Revenue Authority collects approximately $300 million in corporate taxes every quarter. This creates an expected demand for ZiG equal to $150 million, or approximately 2 billion ZiG.

Currently, there is only about US$80 million (approximately 1 billion ZiG) of ZiG in circulation on the official market following the currency conversion in April, when ZiG replaced the Zimbabwean dollar. This discrepancy between the amount of ZiG available and the amount required for tax payments is expected to significantly increase the demand for the local currency, potentially leading to an increase in its value on the official market.

Reports indicate that some companies, especially those that mainly trade in US dollars, have already started looking to ZiG to meet their tax obligations before June 25.

RBZ Governor Dr. John Mushayavanhu assured that there is sufficient reserve money to support all economic transactions during this period. “Companies must pay 25 percent of their annual corporate tax by June 25, 2024, with at least 50 percent of the tax due in ZiG,” he said.

He noted that while the reserve money supports all economic activities, it would be inadequate if all taxes were paid at the same time on the due date. However, companies typically start paying two weeks in advance, and this money is reinjected into the system through government spending, such as paying civil servants’ salaries, easing the pressure on ZiG demand.

Dr. Mushayavanhu emphasized that the RBZ will ensure smooth national payments and settlements. He advised companies to start accumulating ZiG early to avoid acquiring it later at a higher exchange rate. He also assured that while ZiG is expected to rise, the RBZ will deploy strategies to keep the currency within the desired stability margins to avoid competitiveness and deflationary effects of an excessively strong exchange rate.

“The requirement to pay 50 percent of June QPDs in ZiG is expected to further stimulate domestic currency demand and consolidate the current exchange rate stability,” he added. “In general, the ZiG

The dollar exchange rate is expected to strengthen around the QPD period and in the short term. However, the bank will intervene if necessary to maintain stability as both higher inflation and deflation are detrimental to macroeconomic stability and growth.”

The current official exchange rate is $1.48. Experts note that the increased demand for a currency relative to its supply leads to its appreciation, a basic principle of supply and demand.

Economist Dr. Prosper Chitambara commented: “This creates excess demand for ZiG, which is crucial for its sustainability. Strengthening ZiG is important for the microeconomic stability of the economy.”

In April, ZiG replaced the Zimbabwean dollar, whose value had fallen since the beginning of the year. ZiG is backed by a basket of precious minerals, mainly gold, and by foreign exchange reserves held by the central bank.