Online Reporter
Nick Mangwana
Government Up Close
TAXATION is the backbone of any functioning economy, enabling Governments to fund essential public services that benefit society as a whole. The revenue generated from taxes is crucial for building and maintaining critical infrastructure such as public hospitals, schools, and roads.
Moreover, taxes enable Governments to pay the salaries of key civil servants, including police officers, teachers, and nurses, who play a vital role in ensuring the well-being and safety of citizens.
Without taxes, governments would be unable to provide these essential services, leading to a decline in the quality of life for citizens.
The rationale behind taxation is simple: everyone benefits from the services and infrastructure provided by the government, and therefore, everyone should contribute to the system.
Paying taxes is not just a civic duty, but also a responsibility that ensures the continued provision of public goods and services. Unfortunately, some individuals and businesses often view taxes as a burden, failing to see the direct link between taxation and the services they enjoy.
This lack of understanding can lead to tax evasion and avoidance, which ultimately undermines the ability of governments to fund essential public services.
It is ironic that those who complain most about the poor state of public services are often the same individuals who fail to see the relevance of taxation and their own role in contributing to the system.
By paying taxes, citizens are not only fulfilling their civic duty but also investing in the well-being of their communities. As such, it is essential for everyone to understand the importance of taxation and perform their civic duties accordingly.
By working together and contributing to the tax base, citizens can help build a more prosperous and equitable society, where everyone has access to quality public services and opportunities for growth and development.
Formalising Zimbabwe’s economy is indeed a critical step towards achieving sustainable economic growth and development. The current state of our economy, characterised by a large informal sector, poses significant challenges.
While the informal economy has provided a means of survival for many, it’s unsustainable in the long term due to its association with low productivity, limited access to finance, and lack of social protection for workers.
Moreover, the informal sector operates outside the tax net, depriving the Government of much-needed revenue to fund public services. Formalising the economy will increase tax revenue, promote economic efficiency and competitiveness, and provide workers with greater protection and benefits. To achieve this, a multi-faceted approach is necessary.
The Zimbabwean Government’s efforts to widen the tax base and capture those operating in the informal sector led to the introduction of the Intermediated Money Transfer Tax (IMMT). However, in a bid to evade this tax, many informal traders responded by adopting dollarisation, opting to operate solely on USD cash transactions.
This move enabled them to remain outside the formal financial system, thereby avoiding the tax net.
As a result, the informal sector has become one of the key sectors resisting de-dollarisation efforts in Zimbabwe. By operating in USD cash, they are able to sidestep the formal financial system and avoid paying taxes, making it challenging for the Government to bring them into the tax net.
This has significant implications for the Government’s efforts to promote the use of local currency and implement monetary policy. The Government’s challenge now is to find innovative ways to bring this sector into the formal economy, while also addressing the underlying issues that have driven dollarisation in the first place.
Ethiopia’s experience in bringing the informal sector into the tax net offers valuable lessons for Zimbabwe. In recent years, the Ethiopian government has implemented various initiatives to formalise the informal sector, including simplifying tax registration processes and introducing tax incentives for small businesses.
The government has also leveraged technology to increase tax compliance, using digital platforms to collect taxes and provide services to informal traders. These efforts have led to a significant increase in tax revenue from the informal sector, enabling the government to fund public services and infrastructure development.
Kugara nhaka huona dzavamwe (We emulate others by contextualising to suit own circumstances). One key strategy employed by the Ethiopian government has been to engage with informal traders and understand their concerns and needs. By working closely with associations representing informal traders, the Government has been able to design policies and programmes that address the specific challenges faced by this sector. For example, the Government has introduced training programmes to help informal traders improve their business skills and comply with tax laws.
This approach has helped to build trust between the Government and informal traders, encouraging more businesses to formalise and contribute to the tax base.
Zimbabwe is already applying this strategy. This is why President Mnangagwa has met this sector quite a few times. We also have a well-funded ministry responsible for Small and Medium Enterprises. We are on the right pathway but the response has been a bit different from the Ethiopian experience.
By adopting a similar approach to the Ethiopian one, Zimbabwe can increase tax revenue, promote economic growth, and reduce the country’s reliance on external funding. To achieve this, the Zimbabwean Government should prioritise engaging with informal traders, simplifying tax registration processes, and leveraging technology to increase tax compliance.
Additionally, Government is addressing the underlying issues that have driven dollarisation in the informal sector, such as lack of trust in the local currency and limited access to financial services. By learning from Ethiopia’s experience, Zimbabwe can develop effective strategies to bring the informal sector into the formal economy and promote sustainable economic development.
Simplifying registration processes, reducing regulatory burdens, increasing access to finance, promoting financial inclusion, investing in education and training, enhancing tax administration, and providing incentives are all crucial steps. However, formalising the economy won’t be without its challenges, particularly the potential impact on livelihoods of those currently engaged in the informal sector.
To mitigate this, the Government can implement programs to support workers who may be displaced, such as training initiatives and social protection programs. Significant investment in infrastructure and institutional capacity building is also necessary, prioritising areas like technology, education, and healthcare.
By taking a self-reflective approach and working together, we can create a more formalised economy that benefits all Zimbabweans. The benefits of formalisation far outweigh the costs, and with a comprehensive plan and specific targets, we can build a brighter future for our country and create a more prosperous and equitable society.
In conclusion, the importance of taxation in a democratic society cannot be overstated. As we have seen, taxes fund essential public services and infrastructure, enabling governments to provide for the needs of their citizens. It is imperative that everyone, including those in the informal sector, contributes to the tax base to ensure the continued provision of these services.
For those who claim to be democrats, it is crucial to understand that democracy comes with costs, and these costs can only be met through a fair and equitable system of taxation.
As such, everyone who calls themselves a democrat should recognise the importance of funding our democracy, and take their civic duty to pay taxes seriously. By doing so, we can build a stronger, more prosperous, and more just society for all.
Nick Mangwana is the Permanent Secretary for Information, Publicity and Broadcasting Services
Charles Duri