Online Reporter
THE Zimbabwe Revenue Authority (Zimra) has a double mandate, to collect all taxes and duties, but do this at the lowest possible costs so that we get the full benefits from the revenue collected.
Besides the sort of traditional tax evasion by businesses hiding sales and profits, and the high-level fuel smugglers, Zimra faces the extra problem of a huge number of small businesses and the fact that much of our smuggling is an accumulation of small-scale crime.
This has required Zimra to implement new technologies and software and monitoring systems that make it easier to track down tax evaders and collect revenue without spending a fortune.
This year, Zimra is quite confident of meeting a US$7,2 billion target, and if its performance last year is anything to go by, it could well do even better.
Last year, when economic growth was cut to 2 percent because of the severe drought, Zimra still managed to collect ZiG116,47 billion, 10,26 percent more than the target of ZiG105,63 billion.
The fact Value Added Tax surged 39,46 percent in such low economic growth means that Zimra had improved its collection significantly, tracking down a lot of VAT that was being collected, or should have been collected but was not being passed on.
This is important as VAT not only accounted for 31,21 percent of the total revenue collected, but should be one of the easiest taxes to collect and one of the hardest to avoid since it is based on gross sales at each stage from import or manufacture to the final sale.
The calculation is simple, a fixed percentage of the final price minus what has already been collected in the previous stages.
With Zimra insisting that even smaller businesses need to install tills and similar equipment that automatically links them to Zimra and calculates their VAT, the openings for evasion are being closed and more and more attention is now being paid to making sure that all VAT is forwarded.
Some do not forward their VAT, and we need to remember that when a business is paying VAT it is not paying out of its own money or its profit and loss account, but is simply handing over the tax it has collected as an agent of the tax collector.
It is the same with PAYE, the tax on salaries and wages in the formal economy. The employer is simply the tax collector. With PAYE transfers to Zimra jumping 56,5 percent last year, when salaries came nowhere near that sort of jump, means that Zimra was doing a lot more to ensure that employers were both deducting taxes and then forwarding them to Zimra.
Zimra has been using garnishee processes far more frequently against formal sector businesses who delay forwarding these two taxes, and the greater discipline now being shown by many businesses is reflected in the far higher collections. The battle against smuggling uses not only more automation and better software, plus processes that make it ever harder to mislabel products or ever easier to clear customs if you are honest, but also drones and other fairly inexpensive technologies to observe smuggling away from a border post. So both types of smuggling are being curtailed, hidden or mislabelled goods coming through a border post or porters carrying boxes of goods across a river.
The progress being made is not just finding and collecting the taxes being paid, but also in making life ever simpler for the honest individuals and businesses. No one likes paying taxes, but when so much can be done online, with zero queuing and with far speedier processing and clearance, then the payments are a lot more tolerable.
They are also more tolerable when all taxpayers are reasonably confident that everyone else who should be paying tax is paying. In the business world this general distaste of tax dodgers is also a practical matter, that competitors should be paying tax and not getting unfair advantages.
Zimra has been moving more into the informal sector, and here there is a need for redoubled efforts.
The biggest problem with small businesses is that it is perfectly possible to do the audits and calculate the taxes, given adequate resources, but you might find yourself spending $200 to collect $100 from some tiny business, which negates the whole point of tax collection.
Many have argued that for the smallest businesses some sort of flat rate, what are called presumptive taxes, can be a good starting point where something is collected with minimal costs. As the income and business grows, normal taxes can be enforced.
But it should be possible to enforce proper tax collection at the very lowest levels. The law does insist that everyone in business must keep basic records, their “books”, and Zimra has the right to inspect these. More and more these records are digital, which makes everything simpler, and these days there are free open-source software systems that can be run on a very basic laptop.
One way of forcing better record keeping and consequently better tax collection could be for Zimra or some other suitable agent to modify one of these open-source systems to include the sort of information that Zimra requires and then hand this out free to every little business to simply use. At the same time even a basic pen and paper system can be enforced with the minimum Zimra requirements.
Several organisations have run courses for small businesses on record keeping and very basic accounts, and these efforts can be systemised and upgraded so that it becomes possible to track profits and VAT obligations and the like at a glance, so simplifying enforcement. Banks could also offer basic services to their customers that make it easy to track payments in both directions and print out accounts that Zimra accepts.
In the old pen and paper account days, there used to be “backyard bookkeepers” who had a large number of little business clients and would spend an hour or two each month converting some primitive records, collections of invoices and receipts if nothing else, into a form that Zimra accepted and working out what had to be paid.
The problem of the informal sector is that it was left alone for some time, but there have always been small businesses and these used to pay taxes and need to be brought into the tax system once again.
