HomeBusiness DigestTaxation system up for review

Taxation system up for review

Godfrey Marawanyika

GOVERNMENT plans to review the taxation system it adopted in November last year to increase tax revenue in a highly inflationary environment, businessdigest has estab


The move is in line with recommendations of a concept paper it used to review the current tax bands, it has been established.

A draft document titled, Zimbabwe Tax Policy Study, Draft Concept Note, seeks to outline the major results of the November taxation adjustments.

Since 1999, Zimbabwe’s tax system has been operating on negative gross domestic product growth rates and triple-digit inflation. Thus despite increases from 35 to 44% in personal tax between 1999 and 2003, this has not translated into enhanced revenues for government because of high inflation.

Corporate tax revenues have declined by half from 12 to 6% during the same period, the draft paper reveals.

The draft said “a detailed aide memoire” outlining the necessary tax policy changes would be availed to government “so that it could be used in the 2005 budget process”.

The taxation policy has been drafted with technical assistance from the World Bank country office.

In November last year acting Finance minister Herbert Murerwa revised the tax-free threshold from $2,4 million to $9 million per year, which is from $200 000 to $750 000 a month.

The review effectively meant that 84% of civil servants were no longer eligible for Pay As You Earn. Murerwa proposes that the tax-free threshold be increased from $9 million to $12 million per annum.

He also proposes to widen income tax bands to end at $108 million, above which income would be taxed at 40% beginning this month.

The report said although a major focus of the study was the adjustment of the tax system in light of high inflation, it would also suggest ways of making the tax system more buoyant, efficient and equitable in the medium-term.

The draft said while high, sustained inflation tended to increase the real burden of personal income taxes, especially for the low and middle income class, it was also likely to raise the resistance from taxpayers.

“Second, inflation combined with collection lags, weak collection enforcement, and arrears management leads to a reduction in real tax revenues,” it said.

Thirdly, the concept paper said that inflation adjustments, especially for corporate income taxation, were complex and hence great care should be taken so that such adjustments were “suitable to the administration”.

The tax paper draws its data from the experiences of countries with a history of high inflation such as Chile, Colombia, Argentina, Brazil and Turkey.

“We will not necessarily look only at “best practices” (if any), but also on what has generally been done, and what we can learn and combine with theoretical foundation to advise the government of Zimbabwe.”

The report said: “The bank team (World Bank) will work closely with a counterpart team set up in the Ministry of Finance.

The bank team will also work closely with staff of the Zimbabwe Revenue Authority, the Reserve Bank of Zimbabwe and the Zimbabwe Economic Policy Analysis and Research Unit.”

The report said that the World Bank team would also have discussions with private sector taxpayers “who have interest in these issues”.

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