adminKudzanai Gerede
AS the country seeks to navigate its way past a myriad of complexities that hindered economic growth during the past year, Government is seized with an uphill task of expanding its revenue base in the midst of a shrinking economy to finance developmental interventions and the country’s ballooning external debt.
For the greater part of 2015, Treasury has had to shift pay dates for Government employees as the country’s tax collector, the Zimbabwe Revenue Authority (ZIMRA)’s revenue targets were constantly elusive.
In June, ZIMRA announced it had missed its revenue target collection by six percent after realizing $ 1.66 billion from the targeted US$ 1.76 billion for the first half of 2015, a three percent decline from that gained in the same period in 2014.
Income tax, VAT and corporate tax resulted in a sharp decline than anticipated as the formal economy took an acute shift to a predominantly informal one as big companies either closed shop or cut down on staff complement. This has resulted in Government’s tax base dwindling amid the rise of a sophisticated non-tax paying informal sector.
The situation was compounded by a tight liquidity environment that was unyielding for companies to sustain as banks and micro finance institutions battled for survival either leaving little for borrowing to ailing firms or resorting to hiking absurd interest rates for borrowers in order to remain afloat.
The need to prop up Government revenue inflows was more telling in the 2016 national budget where Minister Patrick Chinamasa highlighted that Government revenue collection targets were not able to reach the proposed US$ 4 billion mark (the size of the budget) in 2016 which by average regional standards is too little, stating that Government will only manage to raise US$3.85 billion with the US$150 million deficit expected to be complemented by local borrowings.
As Government commits its efforts towards accelerating the country’s economic blueprint, Zim-Asset, economic analysts have called for the authorities to seriously consider the expansion of its revenue base to complement any external financial support they may be expecting from development partners. This requires a permitting environment for the opening of more companies to boost the industrial index.
The 2016 budget provided a window for expansion of the economy as it gave prominence to promoting local agriculture, energy, manufacturing and mining sectors by scrapping duty for capital equipment exceeding US$ 1 million and also promoting the local motor industry by imposing duty on imported canopies and the removal of selected Government and School Development Associations from Duty Free Certificate Facility. All this was meant to stimulate productivity for these struggling sectors.
However, the most contentious issue has been the question of how Government seeks to handle the bloated public wage bill which has been a major hindrance to Government’s capacity to create savings as over 80 percent of total revenue continues to be absorbed by recurrent expenditure.
Economic analyst, Mr Pepukai Chivore, is of the view that if Government wants to expand on its revenue inflows, the solution might not be to reduce the civil service but to grow the economic cake.
“We need to grow our revenue base, how do we do that, more companies should open in Zimbabwe, attract foreign direct investment (FDI) by creating a conducive environment for investment so as to increase Government platform for taxation. You will also find that right now we are exporting raw commodities, so beneficiation will ensure we get more value from our commodities and this will mean more revenue for Government from downstream industries as they create taxable opportunities,” he said.
He said in the interim, Government should seek to consolidate the current streams of revenue by revising and upgrading the country’s archaic tax code which was crafted prior to the adoption of the multi-currency system and was now proving to be ineffective as it is marred with deficiencies that give room to tax evasion whilst in the long term it should continue with its strategies currently underway of thriving for ease of doing business reforms which has seen the country improving on the international index.
“Revenue underperformances were generally recorded in customs, royalties, VAT and corporate tax, so I think the first thing to enhance Government revenue is to consolidate what is there, make sure that everything due to Government finds its way to Government coffers. We need to come up with ways to plug these leakages,” said Mr Chivore.
Last year, the Auditor-General report highlighted that most of the State enterprises, parastatals and Government ministries failed to honor their tax and statutory obligations which were due to Treasury which sent a negative signal to would-be investors and other private sector players.
In 2015, the Zimbabwe Tourism Authority revealed plans to craft the inaugural tourism satellite account, a statistical instrument designed to measure tourism performance and its contribution to the national economy which will help in tracking every amount generated from the sector for transparency purposes.
The stance undertaken by Government in thriving for transparency in its revenue streams needs a holistic and sincere approach if it is to pay dividend.
The consolidation of diamond mining firms in Marange is expected to go a long way in both sourcing for exploration equipment to revamp mining activities in the area and for transparency in accounting for proceeds arising from the sale of the country’s diamonds.
The mining sector remains an under-explored sector in as far as tapping revenue is concerned. Government needs to intensify its formalization strategy for artisanal miners to contribute to the fiscal.
According to a report done in 2013 by African Development Bank and Global Financial Integrity, Zimbabwe has lost a cumulative US$12 billion in the last three decades through illicit financial flows ranging from secret financial deals, tax avoidance and illegal commercial activities and the Minerals Marketing Corporation of Zimbabwe (MMCZ) said Zimbabwe loses over US$ 50 million worth of gold every month due to smuggling activities.
This is mainly caused by the porosity of the country’s ports of entry which have accounted for considerable proportion of revenue eluding Government coffers this past year with smuggling of minerals and other food stuffs being rampant. Last month the Reserve Bank of Zimbabwe Governor Dr John Mangudya said the country had lost over half a billion dollars through illicit financial flows.
Government will have to invest in modern technology to modernize its tax systems. Modern technologies will not only be limited to border posts where tangible goods pass through but will also be critical in the capture of non-tangibles like Diaspora remittances.
Zimbabwe’s Diaspora is estimated to be around four million with most remitting considerable amounts of money to their relations in the country. In 2014, the Reserve Bank of Zimbabwe said Zimbabweans in the Diaspora remitted US$ 1.4 billion for the past two years with the figure estimated to be even bigger as much of the remittances were being transmitted through informal channels.
As the Finance Minister indicated, Government can increase revenue once the proposed introduction of a Diaspora bond materializes to tap into the market and ensure an incentive that draws the Diaspora into remitting funds through formalized channels.
With the shrinking of the formal sector, the informal sector has become the backbone of most livelihoods in the country. It is estimated that over 80 percent of the country’s existing businesses are Small to Medium Enterprises (SMEs) and the bulk of them are operating as unregistered entities with the parent Ministry claiming that US$ 7.5 billion is circulating in the informal sector.
It is however prudent to note that most SMEs are reluctant to formalize as they are aware of the binding consequences of taxation. Government should provide some form of incentives like rebate on duty when importing equipment so that it lures the SMEs to formalize their activities.
While Government has put in place hefty fines for traffic offenders in a bid to reduce traffic negligence and boost its revenue, there are calls for Government to act with haste on corrupt tendencies that have seen the majority of spot fines not reaching its coffers. Corruption has been a major setback in the country’s economic recovery trajectory cutting across both public office and private sector.
Political and Economic analyst and Media Centre Director,
Mr Ernest Mudzengi said Government should nail the issues of corruption which were rampant in public offices which had seen revenue collection almost insignificant especially in big mining corporates and loss making parastals.
“Government continues to pump money into loss making parastatals, which at the end of the day remunerate nothing to Treasury as corruption and inefficiency plays centre stage there,” he said.Recapitalization and restructuring of Government enterprises will go a long way in the making these entities operate efficiently and profitable realizing meaningful contribution to the Treasury.
Online Reporter