LIVINGSTONE MARUFU
Zimbabwe’s competitiveness and ease of doing business has been negatively affected by high taxes and the low rate of access to electricity, industry players have said.
These constraints have rendered Zimbabwe unattractive compared to other countries in the region, which takes few hours to register a company.
Investors who want to register a company in countries such as South Africa and Rwanda take much less time.
Zimbabwe was ranked 140 out of 190 countries with a score of 54, 5 in the World Bank ease of doing business rankings for the year 2020.
“Overall, Zimbabwe’s performance is poor and discourages investment in the country, when compared to other regional Sadc countries.
“The Zimbabwe tax rate system is characterised by too many tax heads with very high tax rates. The tax system does not promote compliance and investment but rather promotes tax evasion, defaults, informalisation of businesses and company closures,” the Zimbabwe National Chamber of Commerce chief executive officer Christopher Mugaga told Business Times.
He added: “The system is punitive given the prevailing operating environment as it increases the cost of doing business rendering local products uncompetitive.”
Mauritius has a simple tax policy in which a resident of Mauritius has no property taxes or inheritance tax to pay.
The taxpayer only has the 15% income tax to contend with.
Maximum taxation in Mauritius is 15% and the Mauritian government has developed its economic strength through a policy that encourages investment while respecting international standards.
The signing of double taxation agreements and treaties with many countries, including France, has allowed the Organisation for Economic Co-operation and Development to classify Mauritius as one of the most virtuous countries in terms of taxation.
An investment in Mauritius is therefore, carried out in a perfectly legal framework and represents a particularly interesting “tax optimisation”.
Electricity, Mugaga said, was one of the main enablers of economic activities in any business environment.
Zimbabwe’s rank of 167 and score of 48,6 show the extent to which the country’s performance on this component is very poor and discouraging to any potential investor, both local and foreign investors.
He said the best performers in the Sadc region were Mauritius with a global rank of 28 (and score of 88) followed by Namibia (ranked 76 and score of 78.3) and Tanzania with a rank of 85 and a score of 74.9.
Zimbabwe is experiencing erratic power supplies which have resulted in huge losses for most businesses over the years due to interrupted operations, lost time and revenue, damage to machines and lost data.
However, ZESA Holdings has, in recent months, moved to scheduled power cuts by area targeting the peak hours.
Other sources of energy such as liquid fuels are expensive considering the unit price of fuel which is among the highest in Sadc.
ZESA has attributed the erratic power supplies to excess demand and the ZWL$16bn (US$64m) owed by its customers.
Mugaga said there were “negative movements in the pillars which include getting electricity, protecting minority investors, paying taxes, trading across borders and enforcing contracts”.
“Furthermore, the scores for resolving insolvency (32.9), enforcing contracts (39.7) and getting electricity (48.6), remain too low and a major concern, despite registering improvements between 2019 and 2020.”
Regionally, Zimbabwe fares badly with Sadc member states, with which it conducts most of its trade, that is, South Africa ranked 84 (with a score of 67) followed by Zambia on position 85 (and a score of 66.9), Botswana on 87 (with a score of 66.2) and Malawi, 109 (with a score of 60.9).
Mozambique is better than Zimbabwe at 138 with a score of 54.5.
An economist who preferred anonymity said when looking at the twelve sub-components of doing business measures, a lot still needs to be done if Zimbabwe is going to be an attractive investment destination.
“While Zimbabwe has improved in the areas of credit access, starting a business, dealing with construction permits and insolvency, resolving insolvency, enforcing contracts and getting electricity remain the major areas of concern.
“In some tax jurisdictions, some of the tax paying processes are considered as cumbersome, bureaucratic, costly and time consuming, thus making the investment climate in such a country not attractive,” he said.
