LIVINGSTONE MARUFU
The government, which has a very narrow fiscal room, should take a very aggressive stand to revive the economy by reducing tax burden imposed on already ailing companies and also cut foreign trips that tend to put pressure on its purse, captains of industry warned this week.
It is evident that high corporate taxation is of great concern in investors’ decisions, meaning complex and excessive taxation deters foreign investors , and also results in ‘deadweight losses’ as a result of low tax compliance and tax avoidance.
This has a negative impact on business investment activities, which has resulted in many potential investors shunning Zimbabwe as an investment destination.
Worse still business leaders said the current punitive tax was threatening the viability of the already ailing local companies.
The Zimbabwe National Chamber of Commerce (ZNCC) chief executive Christopher Mugaga told Business Times that the government should “walk-the-talk” on expenditure and spend within its means so as to contain inflation in the economy.
“Cutting on related costs such as vehicles, trips and allowances so as not to put pressure to monetise deficits which fuel money supply growth and ultimately inflation, need not be emphasised,” Mugaga said.
The Zimbabwe tax rate system is characterised by too many tax heads with very high tax rates which repudiate investors.
Mugaga said Zimbabwe is ranked the worst in comparison with the given countries on the 2020 World Bank Ease of Doing Business pillar on paying taxes.
Said Mugaga: “The pillar measures payments, time, and total tax and contribution rate for a firm to comply with all tax regulations as well as post filing processes. Also, Zimbabwe’s tax system does not promote compliance and investment but rather promotes tax evasion, defaults, informalisation of businesses and company closures.”
He added: “The system is penalising the complying formal businesses the most. The system is punitive given the prevailing operating environment as it increases the cost of doing business rendering local products uncompetitive.
In other words, the punitive taxes threaten the viability of enterprises. It further squeezes businesses and individuals of their hardly earned disposable income and is infested by too high penalties. The tax system treats small and large businesses alike hence stifles growth particularly of smaller companies.”
This was particularly with reference to corporate/income tax which the business community regards as too heavy for SMEs and treats them the same as big corporates.
In this regard, the tax system is geared more on tax collection than industry growth.
Miners also said the country has a punitive tax regime for miners which threatens investments and growth prospects.
“We have got a lot of taxes which include royalties, corporate income tax, capital gains, local authorities’ charges, EMA, licence, registration and marketing commission among various taxes which are punitive; there is a need for the government to reduce tax on miners to ensure viability. We also need the authorities to allow us to use the liquidated portion to pay these statutory obligations,” miners said in the latest state of mining report.The country’s largest business lobby group, Confederation of Zimbabwe Industries president Kurai Matsheza, said there was need for policy alignment across various government departments towards a common goal.
“Policy alignment ensures that bureaucracy is manageable on key aspects such as import and export procedures, taxation, application of permits and licenses. These aspects have made the local business environment complex and restricted the quantum of domestic or foreign investment inflows into the manufacturing sector,” Matsheza said.
The local industry requires at least US$2bn in new capital injection in order to retool and operate at optimal levels, hence private sector investment is imperative.
“Currently, liquidity constraints still remain high in the local market and this puts a cap on the pace of industrialisation that can be achieved. Creating conditions that ensure businesses thrive also serve as the most sustainable way to create employment and grow the tax base,” Matsheza said.
He said government policies towards sustainable economic growth, poverty alleviation and macroeconomic stability can only be realised through efficient production from the industry through policies that improve the ease of doing business.
Business is calling on finance minister Mthuli Ncube to address the issue of income tax .
The Confederation of Zimbabwe Retailers president Denford Mutashu said the design of taxes and fees is usually influenced by the tax base itself.
“Generally, a lower tax base means that taxes will be higher since there will be a few taxpayers against high expenditure by the government. High informalisation therefore implies high taxes and fees since most players won’t be paying taxes. However, if most of these informal players are brought into the tax net, taxes can go down significantly,” Mutashu said.
He said this means that informal players are holding the economy to ransom, since they are contributing to the high cost of doing business and an uncompetitive business environment.
Mutashu said the fear of taxation is mainly due to lack of knowledge about the tax system and processes. Considering the low incomes that most informal retail players earn, to consider paying tax is already a deterrent to them formalising their operations.
The government has also been under severe pressure to please its strong workforce of more than 500 000 which has been fighting their employer over poor salaries and working conditions. Last week the government promised to pay the civil servants a US dollar bonus.
They have been complaining that the government was prioritising spending much on top of the range cars for top government officials and on their numerous foreign trips.
Government officials have been accused of globetrotting since the relaxation of Covid-19 – pocketing hefty allowances, thereby putting pressure on the government purse.
Meanwhile, the ZNCC said with 99-year leases still not bankable, there is a need to expedite the land tenure reforms to enhance the viability of the agricultural sector.
“Agriculture Funding Land tenure should be revisited to attract private capital. The Ministry of Finance and Economic Development and the Bankers Association of Zimbabwe should put in place a sustainable agricultural sector funding model contrary to grants of yesteryear. Land should have value and be transferable,” Mugaga said.
Mugaga said the government should also consider publishing the Public Debt.
According to the Public Debt Management Office, Zimbabwe’s total public and publicly guaranteed external and domestic debt stood as of December 2020 at US$10.7bn, comprising US$8.4m (external) and US$2bn (domestic).
This translates to a total debt to GDP ratio of 72.6% made up of external debt to GDP ratio of 71.2% and domestic debt to GDP ratio of 1.4%. The total debt to GDP ratio of 72.6% exceeds the 70% provided in the Public Debt Management Act (Chapter 22:21) and the SADC‟s 60% threshold, implying that the country is in debt distress.
The 2020 Joint World Bank-IMF Debt Sustainability Analysis also came to a similar conclusion.
It is important to note that the debt figures did not include other RBZ running facilities not guaranteed by the government, amounting to US$379 million and blocked funds amounting to US$2.8 million (still under due diligence pending debt assumption).
Furthermore, the US$3.5bn for the compensation of former farm owners under the Global Compensation Deed of July 2020 is included after the signing of the cessation agreement.
Adding these amounts to the reported debt gives an estimated total debt figure of US$17.379bn which translates to an indicative total debt to GDP ratio of 118%.
Mugaga said this is somewhat closer to the real picture of Zimbabwe’s total debt figures.
“The Chamber continues to propose that no debt should ever be procured without the involvement of the Parliament of Zimbabwe in the interest of transparency, accountability and confidence building,” Mugaga said.
“This also applies to the assumption of debts by the RBZ, which, if not guaranteed, will see the public paying for other people’s private debts.”
