Zimbabwe tax system hit by low compliance levels

Zimbabwe's tax system is characterised by low compliance levels as registered corporate taxpayers are not remitting their dues, a tax expert has said.

Speaking at The Financial Gazette tax review conference last week, Christina Muzerengi, a tax partner with Grant Thornton, said the three tier pricing system in the country was making it difficult for business to keep up to date with their tax obligations.

"Compliance is a major challenge that business is facing in this country. The penalties being charged on late payments are not helping the situation either as they are creating a huge bill in the tax players accounts.

"It has become difficult to make income tax estimates in this environment because of the changes that constantly happen," she said.

The Zimbabwe Revenue Authority (Zimra) recently said about 60 percent of registered taxpayers were not up to date with their tax payments.

The national tax collector is currently owed over $4 billion in unpaid taxes.

Muzerengi described the level of tax compliance in Zimbabwe as among the lowest in Africa as many taxpayers were not on the Zimra tax register.

She said the country's tax system was also characterised by high tax evasion, tax aversion, high tax rates and high levels of corruption.

The tax collector has been making use of full remission of penalties and in some cases, interest, to try and encourage tax compliance.

While the tax collector has bemoaned low compliance levels, it is interesting to note that it has been surpassing its monthly and annual revenue collection targets.

A cross-section of taxpayers however, accuse Zimra of squeezing companies out of business. Taxpayers lamented that Zimra's tax regime was anti-capital and promotes non-compliance.

"Business is looking for polities that will stimulate the much needed growth…Taxation has been a thorny issue when is comes to stimulating business growth. Our tax rates are one of the highest in the region," she said.

Meanwhile, Zimra confirmed that high debts are negatively affecting optimum revenue collection, as obligations increased to $4,55 billion during the third quarter ended September 30, 2018.

"The authority's performance is set to continue on a positive trajectory in boosting revenue collections through various revenue enhancement strategies as well as maintaining the momentum in the fight against corruption.

"Despite the positive performance, high debt continues to negatively affect optimum revenue collection," Zimra said.

Debt which recorded $4,54 billion as at end of second quarter, increased to $4,55 billion as at end of the third quarter, the national tax collector said.

Revenue performance for the third quarter of 2018 surpassed set target for both gross and net collections.

Gross collections amounted to $1,28 billion against a target of $1,089 billion.

Net collections stood at $1,19 billion after deducting refunds of $95,94 million during the quarter, translating to 8,84 percent above the expected $1,089 billion.

Net revenue collections during the review period increased 22,56 percent from $967,76 million recorded during the previous prior quarter.

Excise duty contributed 21 percent to revenue while net value added tax (VAT) on local sales contributed 19 percent and individuals contributed 18 percent.

Individual tax surpassed the target of $212,21 million by 1,26 percent. Revenue collected amounted to $214,88 million, a 10,68 percent increase from $194,15 million collected during the previous comparable period.