The Sunday Mail
I wish to make specific references to tax collection performances for the quarter ended March, 31 2016 and for comparison purposes, that of the year to March 31, 2015.
According to the board chair’s report, the Zimbabwe Revenue Authority underperformed by about 16 percent after collecting US$725 million net revenues this quarter compared to the US$862 million target.
Compared to the first quarter of 2015, this performance fell by about 10 percent from the US$803 net collection.
Uncollected tax at a massive US$2,6 billion was a jump of some 30 percent compared to debtors on December 31, 2015 (US$2 billion).
The increase was notwithstanding a tax amnesty operational during most of the intervening period.
The broad breakdown of these Tax Debtors at 31 March 2016 was private entities and individuals 73 percent and municipalities, parastatals and State-owned entities at 27 percent.
Debts in 2016 consisted of principle 53 percent, penalty 20 percent and interest 27 percent.
To illustrate pertinent developments in our tax collection, I will focus mainly on four categories of our sources of tax revenues.
These four heads of tax collectively accounted for 82 percent of tax collected in the first quarter of 2016, compared to 71 percent in the comparable period in 2015.
These heads included tax paid by individuals (mostly pay as you earn), tax paid by companies from profits, value added tax (on local sales and imports); which we used to refer to mainly as sales tax and excise duty.
Tax from individuals fell 13 percent between, whereas that expected from companies fell a massive 50 percent during the same period.
Total VAT increased substantially from US$161 million to US$218 million (or 35 percent) and is so far the biggest source of tax revenue in 2016.
It could be even more if maximum VAT rates increase from 15 percent to, say, 20 percent and VAT suppressing instruments are avoided.
Excise duty has also performed remarkably well, increasing by a hefty 55 percent from a relatively smaller base of US$110 million.
Zimbabwe’s taxation system is governed by the Income Tax Act, aided by a host of other subsidiary legislation and policies.
It is a source-based system, which focuses on income earned in Zimbabwe from whatever source, as opposed to that based on individuals or entities irrespective of their jurisdiction of operation or domicile.
Zimbabwe’s economic structure has over the years also transformed and evolved, particularly over the past 15 years, from being mainly a formal one to informal.
The formal economy was dominated by multinational companies, local conglomerates and a few other big firms. In stark contrast, the informal economy is now largely the base of the economy.
Generally, it can be said players in the formal economy are aware and knowledgeable of their responsibilities and obligations towards tax liabilities, whereas those in the informal settings, partly through genuine and innocent ignorance, are unknowledgeable.
You thus get a scenario whereby those players in the formal sector try to minimise payments by tax avoidance practices, which are legal, but nevertheless meet their obligations timeously and meticulously; whereas their counterparts in the informal sector are notorious for tax evasion, which is illegal.
For clarification, payment of tax is a necessary evil which is not going anywhere any time soon.
Even in the Holy Bible, there is mention of tax collectors and unfortunately not in the good light befitting their noble tasks.
To appreciate why taxes are unavoidable and indispensable, one must have an understanding of their purpose.
Taxes finance government activities and fund public goods and services. Public goods and services are those that individuals or corporates cannot pay for individually but would like to enjoy nevertheless.
Taxes are also used to achieve socio-economic objectives. For instance, import duty may be imposed to protect or encourage local manufacturing/ local industries.
Taxes also can be used to protect the environment, for public health and to aid better State administration and management.
This is why Zimbabwe has an array of taxes, levies, duties and revenue heads which include, but are not limited to, mining royalties, carbon taxes, and custom and excise duties on items such as cigarettes and alcohol.
The key is, however, to have a reasonable number of such revenue heads without running the risk of antagonistic effects.
It makes no sense to tax or impose a charge which costs more to administer or control than the revenue it generates or has potential to generate. Conversely, governments should not over-tax citizens although surpluses are the joy of any administration.
Given the high numbers of second-hand vehicles imported into Zimbabwe post-dollarisation in 2009, judicious, efficient and corruption-free collection of revenue heads should alone have been sufficient to have financed at least one annual national budget.
Unfortunately, an unhealthy combination of corruption, cheating, dishonesty, porous borders, incompetency and malpractices have combined to make this a pie in the sky.
Regrettably, some taxes are easier to avoid than others.
VAT and excise duty on fuel, cigarettes or beer are difficult to avoid, as there are paid at the point-of-sale. That is not to say all receivers of such honestly remit receipts to Zimra.
Capital gains and company taxes depend on the integrity and honesty of the tax payer, and the monitoring mechanisms authorities put in place.
The natural disposition of human beings is to be “free riders” in that they want to pay the very minimum of taxes.
Zimbabwe has had a rather peculiar — but exciting — experience as regards taxation since the imposition of illegal Western sanctions in 2001.
The main strategy behind sanctions was to cripple and make the economy dysfunctional so that people revolt against Government. In fact, the intention was that the economy should have collapsed a long time ago.
We have endured suffering since 2001 and the worst period was around 2007 when hyperinflation reached record highs.
Slightly less than half of Zimbabwe’s electorate in 2008 almost voted the ruling Zanu-PF out of power, against their better judgment, because economic, financial and social conditions had become unbearable.
By December 2015, many companies in the formal economy had closed shop, collapsed or relocated, creating serious unemployment and this had dire consequences on tax collections.
The peculiar circumstances that Zimbabwe found itself in, particularly after dollarisation, should have prompted a strategic thinking shift in the mindsets of our tax authorities.
Unfortunately they remained mired in a business-as-usual mindset.
There was need to move away from easily avoidable tax sources (companies and individual taxes) to those more difficult to avoid such as VAT and excise duties.
In addition, there was also a compelling case to educate potential taxpayers on the absolute need and virtues of meeting their obligations.
But this has not happened – to our detriment.
Linking the subject of tax to our National Pledge’s call to “honesty” should also be seen as relating to one’s integrity in paying taxes in full, timeously and not being prone to tax evasion.
- Edmore AM Ndudzo, Harare’s first black City Treasurer, is a chartered accountant and certified public accountant. He played a key role part in crafting the Public Finance Management Bill, now an Act of Parliament
