Chronicle Editor
Prosper Ndlovu
SOCIAL cohesion, the desired willingness by members of a society to cooperate with each other in order to survive and prosper, is what Zimbabwe needs at the moment if the country is to meaningfully tackle the challenges facing the economy.
With Finance and Economic Development Minister, Professor Mthuli Ncube, expected to present the 2019 national budget policy statement tomorrow, there is huge anticipation and anxiety.
Government has already signalled a direction towards austerity measures and a drive towards widening domestic resource mobilisation through taxation for instance.
Citizens expect Government to come up with policies that will drive robust capital investments, stimulate production, create jobs, tame the prevailing price madness and restore sanity in the financial services sector.
The rampant parallel market exchange rates, which have become a headache to the economy, must be arrested given their associated distortions, which have literally squeezed helpless consumers.
It is unfortunate that some citizens and corporates have tended to take a back seat on economic matters expecting the Government to drive the transformation process alone.
Such an attitude has been largely exhibited in the unsustainable level of tax indebtedness, estimated at $4,5 billion, according to Treasury.
The widespread outcry over the recent two cents tax on electronic transactions explains the attitude of some corporates when it comes to paying taxes.
Many reasons are given for not wanting to pay tax yet it is a fact that without adequate domestic resource mobilisation, a country cannot afford to drive its own development.
Neither donor aid nor foreign lines of credit can sustainably substitute domestic resource mobilisation.
Prof Ncube has already alluded to the need for Zimbabwe to look beyond dependency on foreign aid, which often comes with strings attached and rarely meets national needs.
It is for this reason that debate around social cohesion, taxation and inequality should now take centre stage.
Government and relevant stakeholder agents require support of a vibrant communication system to educate the public and raise awareness on the significance of taxation to development.
This was a key highlight at the 7th International Workshop on Domestic Revenue Mobilisation in Bonn, Germany, where leaders deliberated on the socio-political and economic elements of taxation.
Executive secretary of the African Tax Administration Forum (ATAF), Mr Logan Wort, in his remarks captured the essence of taxation to societal cohesion and eradicating inequalities.
For him African countries, including Zimbabwe as a member of the African regional tax organisation, should build strong tax regimes as a mechanism of redistribution of wealth and for providing governments with the funds needed for social development such as education, welfare for less privileged and health.
“An effective and balanced tax regime where all are seen to be paying their fair share of taxes provides the State with greater legitimacy and helps to dispel the now widely held view that that there is a world within our world inaccessible to the ordinary citizen where super-rich elites play by different rules,” says Mr Wort.
Generally, from an African perspective, wealth and means of production are in the hands of the elite while a majority live below national poverty datum lines. In the context of Zimbabwe, a huge gap exists between the rich and the poor.
This has been worsened by years of stagnation and closure of industries in recent years.
Unemployment and inequality have become evident as the economy has become recently largely informal.
Coupled with the mass exodus of Zimbabweans to the diaspora, these have had a negative effect on traditional revenue sources for Government and subsequently affected capital spending.
This structural change in the economy requires Treasury through the Zimbabwe Revenue Authority (Zimra) to develop and adopt correct policies and administration that will support integrity, transparency as well as boost confidence.
These will entice increased compliance levels as people appreciate the importance of paying taxes by linking it to Government’s service delivery.
The level of illicit financial outflows in Africa, estimated at above $50 billion annually and the so-called Panama Papers, the largest leak of financial documents in history, show the gaps in domestic revenue administration on the continent.
Zimbabwe and regional counterparts therefore need to work out ways of administering tax issues to achieve balanced outcomes.
According to ATAF, key challenges to achieving efficient and balanced taxation are the fact that Africa has a large informal sector, the agriculture sector is largely subsistence while a significant number of often high-profile high net worth individuals reportedly evade tax.
Further, African economies are dominated by multinational enterprises (MNEs) in key sectors such as extractives, telecoms and financial sectors, who also stand accused of tax evasion.
“Taxing these elements of the economy is difficult for any government in any part of the world. In African countries those difficulties are exacerbated by a lack of trust in government due to issues of corruption, weak governance and transparency as well as weak government institutions, which leads to a general culture of non-compliance with the law. Citizens do not trust the government and how it will spend the revenues raised through taxes,” said Mr Wort.
Riding on the new Government’s willingness to reform, Zimbabweans expect Prof Mthuli Ncube’s fiscal policy statement for 2019 to tackle these bottlenecks, which undermine the credibility of the tax system in the eyes of all taxpayers.
As long as the largest and most high-profile taxpayers are seen to be avoiding their tax liabilities, confidence and effectiveness of the tax system is undermined, says ATAF.
In Africa tax compliance has also been impacted by poor infrastructure, lack of IT automation and overly bureaucratic processes, which make it difficult and often time consuming to comply with the law.
Minister Ncube is expected to speak to these realities if the country is to progress.
Zimbabwe could draw useful insight from regional neighbours.
Recently with the assistance of ATAF Malawi, Nigeria and Zambia have introduced new and stronger transfer pricing legislation and Senegal, Uganda and Zambia have introduced new interest deductibility legislation.
The ATAF technical assistance country programmes have already helped some African countries collect nearly US$200 million additional tax from transfer pricing audit work in less than three years.
Assessments have been issued for a further additional tax of over US$600 million in the past year.
There have also been successes in the taxation of the informal sector.
ATAF and the Rwanda Revenue Authority conducted a pilot experiment in Rwanda to raise awareness of taxpayer’s obligation.
The pilot experiment generated US$9 million in additional revenue for Rwanda.
More focus is needed on the taxation of the informal sector looking for ways to raise taxpayer awareness of their tax obligations and making it easier for taxpayers to comply.
“Broadening the tax base requires good communication strategies, outreach and taxpayer education and fairness in the implementation of the tax law. This requires consideration of both tax policies and tax administration,” says Mr Wort.
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