Zimbabwe tax penalty punitive

Although Zimbabwe's tax rates compare favourably with those in neighbouring countries, the country's penalty system has been condemned as excessively punitive.

The Zimbabwe Revenue Authority (ZIMRA) charges a 100 percent penalty on tax defaulters as a way of discouraging taxpayers from playing games with the taxman.

With companies' bellies up, thrown off-balance by an economic crisis that has persisted since 2000, the high penalties are threatening the survival of businesses in Zimbabwe, which also have to grapple with other operational costs and a biting liquidity crunch.

It has been argued before that the high tax penalty rate could be forcing many companies to conceal tax arrears, significantly prejudicing Treasury.

Perhaps this also explains why ZIMRA's tax amnesty has attracted poor response from its intended beneficiaries.

The tax-collector introduced a tax amnesty late last year to allow tax defaulters to own up to their delinquencies.

Only a few companies have volunteered their obligations under this window, with the majority of firms fearing that ZIMRA could blacklist them or even punish them despite assurances that this would not happen.

The tax amnesty allows delinquent taxpayers to settle their tax debts without having to pay penalties or interest on account that they voluntarily inform the tax collector of their obligations.

ZIMRA introduced the tax amnesty with the hope of collecting millions of dollars from tax evaders through voluntary submission on account of forgiveness for a tax delinquency.

The amnesty, the first of its kind in this country, covered tax offences committed during a six-year period between February 2009 and September 2014.

Taxpayers granted tax amnesty were to pay the principal sum owed, free of interest, surcharges and penalties and agree on a payment plan up to December 31, 2015.

The amnesty was extended to June this year due to poor response.

Ernst & Young tax consultant, Sifelani Nhliziyo, said the 100 percent tax penalty charged by ZIMRA made the domestic tax system punitive, even though tax rates were at par with regional averages.

According to regional tax statistics, Zimbabwe's average tax rate stands at 25 percent, against that of South Africa which is at 28 percent, Zambia at 35 percent, Botswana at 22 percent, Malawi at 30 percent, Mozambique at 32 percent and Namibia at 33 percent.

"In terms of tax rates and everything, we are not that bad. Actually, our rates are lower than most of the neighbouring countries. It is not necessarily the tax that is high, but the way we do our things. The only country lower than us is Botswana, so if we talk of being heavily taxed, our argument might not hold water," he said.

The penalty system, he said, was the major problem with the country's tax regime.

"Our tax penalty system was actually crafted when we were using the local currency whereby one would just go to the bank and pay a 100 percent penalty taking advantage of inflation, which would have lightened the burden," said Nhliziyo.

"With the United States dollar based economy, where do you get a 100 percent penalty on a 25 percent tax charge? This is the area that industry needs to start proposing changes. In South Africa, if a person is hit by a tax penalty by the South African Revenue Services, it is in the regions of 10 percent and 20 percent…the tax penalty is not meant to kill a person, but (is) meant to make sure that you feel the pain rather than kick you out of business," he added.

Nhliziyo also highlighted that the 15 percent value added tax (VAT) on accommodation levied on foreign tourists should have been staggered in such a way that operators could pay five percent during the first year and then 10 percent in another year to make Zimbabwe competitive on the tourism market.

Tourism and Hospitality Minister Walter Mzembi is one of those who have spoken out strongly, in protest over the imposition of the VAT.

In August, he was quoted as having said that the introduction of the tax may not help grow the tourism cake and neither does it guarantee that government will get the desired increase in revenue.

"Instead, there is merit in working to close possible leakages in the sector and considering other novel ways of taxation which may include taxing outbound tourists rather than taxing inbound arrivals who are coming to spend in the destination," he was quoted saying.

The tax was unilaterally imposed on foreign tourists' accommodation to enhance government's depleting coffers.

Since then, the country has collected a total of US$1,65 million from the VAT on non-resident tourist accommodation in the four months to April this year, according to official data.

Despite concerns from various tourism stakeholders that the increased VAT would have negative implications on the tourism industry, the Finance Ministry's secretary Willard Manungo recently told Parliament that the introduction of the tax was in line with regional trends.

"From a fiscal point of view, we continuously monitor the environment to try and ensure that we don't undermine the recovery of the tourism sector," he said, adding that the VAT was only introduced based on submissions from tourism stakeholders.