Source: Proposed finance law threatens jobs – NewsDay Zimbabwe December 13, 2019
BACK in July 2015, a Supreme Court ruling involving Zuva Petroleum and two former managers, caused at an estimated 30 000 workers to lose their jobs on three months’ notice, most without benefits.
BY TATIRA ZWINOIRA
Government moved to amend the law after a serious backlash, forcing the court to reverse the mass job losses.
Now, over four years later, government could have potentially opened the door again for indiscriminate dismissals via a tax incentive to support youth employment.
Youth Tax Incentives and their implication
In last week’s Government Gazette, the authorities put forward Finance Bill No.3 of 2019, which proposed measures to incentivise jobs and plug revenue leakages through income tax.
All clauses in the Bill were to actualise measures in last month’s 2020 national budget that prioritised jobs to improve demand-induced economic growth.
“The support framework to be published through regulations, will target employers who meet the following conditions, among others,” Finance minister Mthuli Ncube (pictured) said.
These include a tax credit of $500 per month per employee; raising the tax threshold from $700 to $2 000; reviewing the tax free bonus from $1 000 to $5 000; and decreasing from 25% to 24% the tax on the taxable income of companies, trusts and unincorporated businesses.
While not proposed in the Bill yet, the budget proposed increasing the minimum wage to $2 000 for new employees.
But, where the problem has come in is another condition put in the budget for companies to enjoy some of these incentives, namely that firms must employ employees aged 30 years and below at the time of employment.
Basically, the more under-30 people employed by a firm, the more tax credits a company gets.
This means companies stand to benefit more by having more people aged 30 and below under their employment than existing long-serving employees, who the company is contractually supposed to pay better salaries and other perks.
Traditionally, in times of economic difficulty such as the present where companies are closing due to shrinking business revenues, companies often implement cost-cutting measures around labour.
Legal opinion
Labour lawyer Johnlife Mawire said whenever a labour policy is crafted, it is very important that government barometers the measure with human rights at the workplace.
He added this was especially true around polices concerning recruitment, service enhancement, retrenchment, training and termination of employment.
“This is so that you do not get to the Zuva judgment situation, where a policy then has some negative effects which we may not have seen when you came up with a policy. I think it would be important to monitor implementation of policies to make sure that we do not have negative effects that might erode the balance of rights, particularly in the private sector,” he told NewsDay.
“You always find some employers who, in bad faith, look at loopholes in policy and then try to take advantage of that. So, my answer is, yes, it is very possible that you might have some employers who want to take advantage of long-serving members.”
Mawire added: “If they do not have any cases of misconduct they may have to retrench and there is cost element to it, so they may find some easier ways to evade the policy in order to engage the youth”.
He said government’s youth employment initiative was a welcome move, but its implementation needs to be monitored.
Another labour lawyer, Rodgers Mutsikidze, said while he did not rule out companies taking advantage of the tax incentives to dismiss long-serving employees in favour of younger ones, he was concerned with another potential area.
“That phenomenon is already common where companies hire graduates and interns to cut costs… What is simply needed is to put a mechanism that would guard abuse of that facility (tax incentives) because the abuse maybe in such a manner that you can even have ghost new graduate employees who are actually just there on paper, but not providing service,” he said.
“People may want to benefit from that $500. That is the only thing that needs to be safeguarded, because I can simply have contracts signed and say I have employed 100 and multiplied by $500, that is $50 000 every month.”
Labour opinion
Currently, several labour unions are interrogating the tax incentives to see how this would impact workers.
Among them is the country’s largest labour union, the Zimbabwe Congress of Trade Unions (ZCTU).
“Knowing corporates, whenever there is an opportunity for tax avoidance, they do so… I am not fully briefed about that (taking advantage of tax incentives) because we are already abusing students on attachment. Many corporates have already retrenched not because they cannot carry the numbers or head count, but simply because there is cheap labour from universities,” he said.
“So, every year they recruit students on attachment and abuse them give, them slave wage allowances and use them for positions that are normally permanent. In some cases, they restrict them to one department so you cannot eradicate 100% the malpractices of corporates.”
“The company sees an opportunity to use the window to evade or avoid taxes and get a tax rebate. Another aspect is to see that window to remove the long-standing workers and replace them with the young workers. But, it also has repercussions for the company because the long-serving workers also have high productivity,” Mutasa said.
Ultimately, it may come down to firms looking at the cost benefits of retrenching long-serving workers in favour of hiring inexperienced ones.
Employer opinion
Despite the potential effects of the tax incentives, Employers’ Confederation of Zimbabwe president Israel Murefu said the tax incentives were too small for employers to take advantage of.
“The tax credit is insignificant, in my view. It does not add to the bottom line. The incentives are not adequate to encourage companies to hire youth or new graduates, I do not think so. They are too paltry and too small. Yes, it is a step in the right direction, but I think they should have done more because I don’t think you will realise much in hiring those graduates. The tax credit is just too little,” he said.
“I think one thing people are missing is that a person who has stayed longer has more experience at the company and are more valuable to the company than one who is just coming in. A person who is just coming in is not fully productive because they have to go through a learning curve to go through training and so forth”.
He added: “So, during the time you are training them, you are not getting much productivity out of that person, whereas an experienced and skilled person is likely to give you more output and productivity. They would also be able to train new employees who are coming into the organisation.”
What can employees do to protect themselves?
For employees to protect themselves, they need to constantly be in touch with their workers committee and labour unions.
They must always be updated as to what their workers committee is doing in terms of its engagements with the company and get information about those meetings.
If a company does not have a workers committee, a worker must constantly engage their labour union for advice and knowledge against any changes a company makes.
Within the company, a worker must also engage the human resources department to prevent being caught off guard against changes in the firm’s policy.
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