Online Reporter
THE tight fiscal discipline which has brought so much stability to our economy and created a functional national currency means that the Government is largely limited by the tax revenue when it comes to spending.
A small amount of borrowing is permitted but only for that small fraction of capital spending when an instant new revenue stream is created to service and repay the debt without any strain. Otherwise what the Government can spend depends on how much tax is collected; the more collected, the more and better services can be paid for.
So the fact that the Zimbabwe Revenue Authority (Zimra) exceeded its first quarter target by collecting just over US$1,5 billion or its equivalent in ZiG means that not only is the economy growing but Zimra is making inroads into collecting from those liable for tax who have not been paying and that the authorities have forced a reduction in smuggling.
Zimra has targeted tax collections at 17 percent above last year’s targets, and this is far in excess of the economic growth of around 6 percent and far more than the couple of very modest new taxes are likely to yield.
Most of the new money will be coming from those who should be paying taxes but have not been paying. Government has been introducing new collection measures via presumptive taxes that make it easy and cheap to collect some taxes and advantageous for a growing number of delinquent taxpayers to register for taxes and pay what they owe.
We assume the targets took into account the modest extra sources of tax and the methods to collect taxes that had been paid by most in the past that Parliament passed last year when implementing the budget prepared by Minister of Finance, Economic Development and Investment Promotion Mthuli Ncube.
The only really new tax was that 0,5 percent on most fast food items, a health tax that is helping to fund the necessary emergency expansion in medical spending following the suspension and withdrawal of some health support by the United States.
The other tax measures were basically an administrative clean up to ensure that taxes that should be paid were being paid. There was the reintroduction of duty on some non-critical items in the medical category that should not have been counted as medicines and medical equipment in the first place. Cleaning up the tax system within Special Economic Zones simply ensured that those benefiting from the concessions were genuine.
The 10 percent withholding tax on the winnings of sports betting punters was not a new tax. Those who make money from sports betting are supposed to declare these winnings on their tax returns, but hardly anyone does so.
Zimra could investigate, but the administrative cost of hunting down winners and getting them to pay would be huge, and probably more than the punters would then pay in tax.
Instead a cheap and efficient way of collecting the taxes was devised by getting the relatively small number of licensed sports betting companies to collect the withholding tax and send the money to Zimra each month with the rest of the taxes they collect, such as the PAYE on what they pay their staff.
Last year similar methods were used to start getting retailers in the informal sector to pay at least some of the tax they had been avoiding. Manufacturers and wholesalers now have to collect a presumptive tax from retailers who cannot produce a tax clearance certificate showing they are registered with Zimra and up to date on their taxes. The percentage is roughly what they would collect in their share of the VAT on the final sale, so it was not meant to be punitive, but only collecting what should have been paid separately.
Again collection charges are very low, larger companies in the formal sector being the tax agent and such companies have regular dealings with Zimra and simply have to add on the additional tax.
The intensification and growing efficiency of anti-smuggling operations is also helping tax revenue by making sure almost all imported items are now charged customs duties and at least the VAT on the import value, even if the last 25 percent or 30 percent of VAT on the retail margin is missing. Even as customs duties are reduced and free trade deals end customs duties, the VAT remains.
The informal sector is seen as a source of more tax revenue, but the main problem is that this sector has a vast number of very small businesses, almost all of whom are liable for very small amounts of tax although there are some larger concerns hiding in the undergrowth.
So the problem in enforcement is that the enforcement charges could be high compared to the tax collected.
A set of high presumptive taxes on some easily identifiable businesses needing fixed premises was introduced, not so much to collect those taxes but to force these businesses to formalise, become licensed and registered with Zimra so that they would pay what in most cases would be far lower amounts of tax, with some owners perhaps even in the zero tax band.
We hope that Zimra and the local licensing authorities are moving to get these businesses regularised and formalised. The growing IT systems of Zimra should be making collection of hundreds of thousands of small tax payments a lot easier and keeping the collection costs well below the amount collected.
What amounts to formalisation of a growing percentage of the lower end of the informal sector through the new Government policy of having major markets such as the new Mbare Musika Market, rather than just a collection of shacks and shelters, means that very small amounts of tax can be collected from each business.
If those thousands of micro-businesses in the Mbare market were each paying taxes of just $1 or even 50c a day, the amount collected in total would be a useful figure.
The Government and Zimra need to continue looking at innovative, but very fair, ways of collecting the small amounts of tax that vast numbers of people should be paying and where enforcement costs on traditional tax collection can be a high fraction of the amount collected.
We stress that the taxes on informal businesses should be fair, which might mean that for many they will not amount to much, but they should still be collected and paid so that all in business are making their fair contribution to the fiscus, not just the larger businesses and those receiving salaries and wages in the formal sector.
