Mthuli Ncube's 'painful' revenue masterstroke

AS Zimbabwe focuses on transforming the economy and broadening the job market, it is important for every citizen to appreciate the desperate need for generating critical funding to oil the development agenda.

The situation in which 90 percent of domestic revenue is chewed by the public wage bill is not sustainable, as it leaves no room for capital expenditure and the desired pace towards development.

Neither donor funding nor increasing foreign direct investment is adequate to meet the country's development needs outside a viable domestic resource mobilisation framework.

This perhaps explains why Professor Mthuli Ncube, the new Minister of Finance and Economic Development, has stressed the need to adopt tough or painful measures, if need be, to stabilise the economy and particularly strengthening domestic revenue mobilisation.

Without underestimating the diversity of views and opinions about the level of tax burden in the country, it is a fact that Zimbabwe's revenue base has weakened over the years when compared to developmental needs.

This has been worsened by structural changes in the economy, which have resulted in a highly informalised industry. Recent reports indicate an estimated 300 000 businesses are compliant with paying taxes, according to the Zimbabwe Revenue Authority (Zimra) while over $4 billion is owed to the tax authority by different companies and individuals.

The millions of informal sector operators, somehow due to challenges in formalising their enterprises, are not contributing anything to the fiscus, yet enjoy services and expect improved development and service delivery from Government and local authorities.

In his Monday statement on fiscal measures to stabilise the economy, Minister Ncube hammered on the need to rope in the informal sector on the tax basket. This has to be achieved by introducing a two cents tax per every dollar electronic transaction. The minister did this by reviewing the Intermediated Money Transfer Tax, which was pegged at five percent per transaction with effect from 1 January 2003 through the Finance Act 15 of 2002.

"Due to the increase in informalisation of the economy and huge increase in electronic and mobile phone based financial transactions and RTGS transactions there is need to expand the tax collection base and ensure that the tax collection points are aligned with electronic mobile payment transactions and RTGS system," said Prof Ncube.

"The information we have so far is that in 2018 1.7 billion transactions went through as compared to 50 million four years ago. I, hereby, review the Intermediated Money Transfer Tax from five cents per transaction to two cents per dollar transacted, effective 1 October 2018."

Treasury has since directed financial institutions, banks and Zimra, working together with telecommunication companies to extend the collection to all electronic financial transactions.

Certainly this is not an amusing pronouncement to consumers and businesses alike, as it hits hard on their pockets when transacting electronically.

The concern is indeed justified given biting cash shortages that have seen mobile money platforms or swipe as the only options. There is need, however, to look at the bigger picture, that of citizen contribution to national development, which every Zimbabwean needs to seriously interrogate.

The nation desperately wants improved service delivery. The same citizens who cry foul over tax burden should know that service delivery starts with citizens paying tax. It's an investment that one will meet when he or she goes to a hospital or drives along a public road, for example.

Public hospitals, new schools, clinics, roads and others are developed using public funds from tax. Such simple examples need to be understood by all. It is a fact that we have a generation of entrepreneurs that have never paid a single cent of tax in their lives.

The same people that opt to demonstrate demanding service delivery, the same generation that is shocked when infrastructure is decaying, should understand, painful as it is, the need to start paying tax.

More public education is required seriously on this. We all need to appreciate that governments all over the world have one means of raising money to provide services.

That means is called Tax! With 90 percent of transacting with informal business outside the tax systems, this means everyone is not paying tax and that is not good for development. Tax is a reality.

This, however, does not downplay the need for rationality and taking into account the plight of citizens who pay tax. The Government would have to be more transparent and increase accountability in how the tax payers' money is utilised. Austerity measures on Government expenditure have to be taken and swiftly implemented. Prof Ncube has already made a pronouncement to this effect and shown desire to slash public expenditure to tame budget deficit.

The public has the right to demand adequate service delivery too as well as improved financing of capital projects and better standards of living. This is where most Africa Governments have failed the test and Zimbabwe will have to do better going forward.

According to the Business Insider, tax rates vary in each country, from over 50 percent to zero percent for the average wage earner in the country. In developed countries, the tax rates are much higher and that is reflected in the level of their social services and basic infrastructure sophistication.

The publication notes that Spain, France, and Germany, for instance, all have the same 30 percent tax rate for the average citizen, but Germany has the highest average salary.

Similarly, Switzerland and Denmark have the highest pre-tax salaries. The African Tax Administration Forum (ATAF)'s 2018 edition of the African Tax Outlook, also acknowledges the problem of tax compliance and the need for reforms and policies to broaden the tax base, narrow tax gaps, simplify and improve fairness in tax systems, enhance overall voluntary compliance, and keep policy makers informed on tax matters.

This stresses the need for a comprehensive reform on tax administration at home so as to generate adequate resources to finance development.