'Zimbabwe's tax system too complex'

A business operating in Zimbabwe will have to make at least 51 payments for it to be considered to be compliant with its tax obligations, a study of the country's tax regime has shown.
According to the survey, which was conducted by the Zimbabwe National Chamber of Commerce (ZNCC), the current tax system is characterised by too many tax heads with very high tax rates compared to other countries.

The survey was based on responses from 86 businesses in Harare, Bulawayo, Mutare and Gweru.

This comes at a time when fiscal authorities in the country are trying to widen the reach of the tax collector in order to shore up depleted government coffers.

In October, the tax levied on financial transactions was upped to 2% per transaction in an attempt to net in small informal businesses, which have largely gone undetected by the taxman for a while. This sector constitutes an estimated 40% of the country's economy.

Zimbabwe solely depends on tax revenue to fund its entire national budget after it was shut out by international financial institutions for failing to pay up its debts.

The country owes the African Development Bank and the World Bank a combined $2 billion. It is also indebted to the Paris Club lenders in excess of $2 billion.

"The increased administrative burden, bureaucracy and other associated economic challenges have resulted in increased cost of compliance to the private sector.

"High tax compliance costs are associated with larger informal sectors, more corruption and less investment," part of the survey reads.

According to Zimra, there has been an increase in the stock of unpaid taxes and this shows increasing non-tax compliance by taxpayers.

Between the period 2014 and 2017, the stock of outstanding tax rose from $821 million in 2014 to an estimated $3,5 billion at the end of 2017.

As of May that had increased to $4,3 billion, an amount enough to fund the 2018 budget.

The growth in the stock of tax debt has largely been driven by non-payment of withheld VAT on local sales and corporate tax.

"The increasing stock of tax debts highlighted an inherent challenge with the country's tax administration system that is making it difficult for businesses to comply with their tax obligations," the survey revealed.

Zimbabwe's tax structure is currently dominated by indirect taxes, notably import duties and excise duties.

"The general business concern about Zimbabwe's tax system is that it has numerous tax heads that are applicable to business and investment and these exert a huge tax burden on them," the survey says.

"This, coupled with cumbersome investment approvals, increases the cost of doing business, thereby scaring away investors who could contribute immensely to government's tax revenue.

"In addition, the current marginal tax rates are high, thereby promoting tax evasion by taxpayers."

The survey also notes that the legal framework is too weak to tame defaulters and that there is a lack of incentives to motivate tax compliance.

The World Bank, in its 2019 Doing Business Report, ranked Zimbabwe 145 out of 190 countries in terms of paying taxes. In Africa, Zimbabwe is ranked 26th out of 54 countries, while in the Sadc region it is ranked 12th out of 16 countries.