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Zimra targets tax dodgers

by Staff reporter
07 Apr 2019 at 11:18hrs | Views
WHEN the taxman pays an impromptu visit, they all shut their doors; and when he calls-in everyone stampedes for the exits just to get a good reason to say "no one heard the call".

Very few people would want to pay their taxes, if there is a good reason to save their own skin.

Besides, paying taxes is often mired in red tape which can be avoided if one learns the ropes of tax evasion.

At times, the Zimbabwean taxpayer just feels robbed of their hard earned money by the tax collector due to what is generally perceived to be a harsh tax regime prevailing in the country.

Just the sight of the taxman scares the hell out of the unfaithful taxpayer, who thinks that tax compliance is just for the formerly employed and registered employers.

Issues around taxation have always been complex for the layman, with corruption in government making the taxman's work difficult because no taxpayer wants to fund profligacy.

The centralization of finance and accounting functions in trade has added more complexities, especially on the part of informal traders who operate under minimal knowledge of accounting and tax reporting practices.

For the formally employed, perhaps the only time they get to interface with the taxman is when their employers deduct their pay as you earn as well as the Aids levy.

Many are however, familiar with value added tax levied on them when they buy their groceries, airtime or pay for services in their favourite joints.

For formal businesses, a part of their income is levied under trade and investment income tax, among a range of other taxes.

Zimbabwe Revenue Authority (Zimra)'s head of corporate communications, Francis Chimanda, told the Daily News on Sunday this week that while tax remittances have improved in value terms, there has been a decline in the level of tax compliance.

"As the economy faced challenges, some taxpayers have found it difficult to remit the tax," he said.

Zimbabwe's tax compliance is among worst on the African continent.

Unfortunately, development in the southern African country has also remained poor, forcing the nation to rely on donor funds in order to respond to its social needs.

In 2018, tax arrears ballooned to around US$4,5 billion,  according to the permanent secretary in the ministry of Finance George Guvamatanga.

In 2018, the taxman collected US$5,36 billion which is 21,80 percent of the country's gross domestic product (GDP).

The tax is then used by government to cover social services such as health, infrastructure development, etc.

In the same year, the country's expenditure at $8,2 billion exceeded the budget of $5,3 billion by $2,8 billion.

Zimbabwe has been running on budget deficits for many years because tax remittances have remained low.

It is also important to note that 20 percent of Zimra's clients, who are registered for tax, contribute 60 percent to 80 percent of the revenue collected.

Meanwhile, millions of potential taxes are stuck in the informal sector, which is estimated to be contributing 60 percent of GDP.

In a way, the informal sector must come to the party for Zimra to broaden its tax base.

And this also applies to cross border traders; the vendors on the streets; owner of flea markets, operators of abattoirs and grinding mills, the hairdresser, the home-based tailor and kombi owners.

As with cross-border traders, there is rampant border jumping and smuggling.

According the International Monetary Fund, Zimbabwe's unemployment rate has been over 80 percent for more than a decade owing to the divesting and closure of most companies after the country's economy collapsed.

Consequently, the economy has shifted from traditional business models – precipitating the rise of the informal sector, which has become the biggest employer.

Lately, Zimra's positive performance has been anchored on the introduction of the Intermediated Money Transfer Tax – dubbed the two percent tax – general price increases in the third quarter of last year and improved revenue generation.

With the introduction of the two percent tax, Zimra feels that the authorities are moving towards bringing a broader inclusion of the whole country to pay tax.

According to Zimra, some of the actors in the informal sector are simply unaware of their obligations.

Zimra has therefore been rethinking its approach to domestic tax compliance and reporting.

Chimanda said the authority is introducing a number of tax reform programmes to facilitate compliance to a higher level having realised that most small to medium enterprises (SMEs) and the formally employed workers do not understand most of the tax legislation.

"The level of tax compliance is at the moment very low and efforts are underway to address that primarily through improved communication and taxpayer education. Zimra has also carried out a detailed review of its strengths and weakness through the TADAT diagnostic tool," Chimanda said.

"…We are holding taxpayer education through workshops, seminars, road shows, the radio, the TV and print media and every Thursday we publish an article on tax issues in the print media under the Taxman's corner," he added.

Zimra has also been conducting door-to-door visits to encourage registration for tax payment purposes.

Between last year and the previous one, Zimra has also been engaging associations for SMEs in a bid to educate their members.

Also, presumptive tax legislation has been introduced to broaden the revenue base in view of the increase in informal business activities.

In 2018, Zimra reported around 30 percent tax compliance on presumptive tax.

However, presumptive tax on the informal sector remains ineffective and small scale traders continue to find ways to dodge taxes while the majority may not have knowledge about their underlying tax obligations.

While Zimra is trying to tap into informal revenues, it still needs to do much more.

According to Confederation of Zimbabwe Retailers president, Denford Mutashu, there is need for government to shift its focus and engage the informal sector so that it begins to contribute to the fiscus.

"Firstly, we need a robust export strategy to increase our earnings, (and) an equally thought-out import substitution (strategy) because finished goods are mopping out the foreign currency (we have in the country) so we need not to export unprocessed goods to create jobs and add the value chain.

"Secondly, government needs to take steps to formalise the growing informal sector and not just focus on the formal sector because the economy is now largely informal," he said.

Source - dailynews
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