Investment Rating - The report does not explicitly provide an investment rating for the industry. Core Insights - The report analyzes the fiscal and distributional impacts of VAT reform in Zimbabwe, highlighting the importance of domestic revenue mobilization to create fiscal space and support macroeconomic stability. The announced changes in November 2023 are expected to increase VAT revenue by 0.88% of GDP, but they may also increase poverty by 1.4 percentage points and inequality by 0.14 percentage points. Therefore, any VAT reform must be accompanied by compensatory mechanisms targeting poorer households [10][22][50]. Summary by Sections Introduction - Taxation and transfer payments can significantly influence income distribution and reduce poverty and inequality. Many countries provide lower VAT rates or exemptions for goods that constitute a large share of poor households' consumption. However, evidence suggests that VAT is not an effective means of resource redistribution [13][14]. VAT Structure and Proposed Changes - VAT has been a major revenue contributor in Zimbabwe since 2009, surpassing income tax. The government announced measures to increase tax revenue, including limiting VAT exemptions and zero rates primarily to exports and essential goods. The changes aim to broaden the tax base and increase revenue while ensuring fairness in tax distribution [16][22]. Data and Methodology - The analysis utilizes data from the 2017 Poverty, Income, Consumption, and Expenditure Survey (PICES) and employs a fiscal impact analysis framework to assess the effects of VAT reform on households. The methodology includes VAT gap analysis and distributional impact assessments [26][33]. Results - The current VAT gap in Zimbabwe is estimated to be 5.4% of GDP, with a significant portion attributed to policy choices rather than compliance issues. The proposed VAT reforms are expected to enhance revenue efficiency and reduce the VAT gap to 5.36% of GDP by 2024. The policy gap is projected to decrease from 4.3% to 3.42% of GDP, indicating improved tax collection efficiency [47][50].