Omega Ukama 
THE introduction of a capital gains tax (CGT) of 40 percent on the Zimbabwe Stock Exchange (ZSE) will slow down activity on the market, analysts have warned.
The government raised capital gains withholding tax from two percent to four percent in May as part of measures to restrict speculative activity on the local bourse, which they claimed was driving inflation.
The government has since doubled down on this, introducing a 40 percent CGT on securities sold on the ZSE within 180 days of purchase.
“The ZSE wishes to notify stakeholders that we are in receipt of a correspondence dated October 28, 2022 from the ministry of Finance stating the capital gains withholding tax and capital gains tax on the ZSE,” chief executive Justin Bgoni said last week in a notice.
According to the letter, a capital gains withholding tax of four percent is still applicable on scrip disposals within 180 days of purchase.
In addition, “disposal of securities within 180 days from the date of purchase will attract a CGT rate of 40 percent on the assessed gain”.
And this, analysts say, could hamstring activity on the country’s main bourse.
“This will pile on the other encumbrances on the exchange, it will hurt activity and liquidity, and by extension price discovery on the exchange will also suffer,” a local equities analyst who elected anonymity told The Financial Gazette this week.
“The introduction of the 40 percent tax is a huge blow to retail investors who are predominantly short-term in terms of investment horizon,” Enock Rukarwa, another analyst said.
“At a time when the Reserve Bank of Zimbabwe is trying to accelerate financial inclusion from all financial services pockets, the additional tax burden in equity securities is distortionary,” Rukarwa added.
According to the ZSE, retail investment – involving non-professional market participants who generally invest smaller amounts than larger institutional investors – has grown significantly in recent years on account of the introduction of mobile trading platforms, ZSE Direct and C-Trade.
Meanwhile, Bridgefort Capital, formerly MedTech Holdings, had warned that a review of the CGT on ZSE would “undermine” the country’s capital markets.
“This measure will undermine trading on the capital markets, and we urge the authorities to reconsider and consult the market on the implications,” BFC said recently.
This was after Finance minister Mthuli Ncube had proposed in his 2022 mid-term budget statement, a 40 percent CGT on shares disposed within 270 days.
He said then that this would “curtail speculative tendencies on the stock exchange that partially contributed to the rapid movement of the exchange rate, thereby destabilising the economy”.
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