Taxing the poor: cruel political mischief

Vincent Kahiya

IS it not amazing that there are more Zimbabweans going to China than Chinese tourists coming into the country to visit major tourist attractions? Is it also not amusing that Air Zimbabwe now has weekly flights to Dubai, carrying traders who bring in merch

andise for resale here?

For a country that is short of foreign currency, this is scary. The Zimbabwe Tourism Authority, whose major brief is to market the country’s major attractions, can only watch in awe at these developments. ZTA chief executive Karikoga Kaseke last week told this paper that those going to China and Dubai were fuelling the black market. He is right.

There was no trading on the stock exchange towards the end of last week and early this week as brokers withdrew labour to protest the imposition of a 10% withholding tax on the sale of tradable securities.

A stockbroker, chatting to one of our staffers last week after Finance minister Herbert Murerwa presented his mid-term fiscal policy review, suggested that the best investment platform at the moment was the black market and not the bourse or the money market. This is strange coming from a punter who makes a living trading on the stock exchange. There are better returns on the streets than in well-appointed boardrooms and office suites.

New farmers, notorious for accessing cheap government funds and then diverting them into speculative activities, have found another avenue of getting rich quickly without putting seed into the ground — fuel. It is easy to access the scarce commodity. The farmers only need to produce documents that they are “proud owners” of a piece of land even if they do not have ox-drawn ploughs, let alone tractors. This is the fuel that is sold on the black market. They have become billionaires overnight without participating in the cumbersome business of farming.

Teachers who are taking exam classes can afford to laze around throughout the term so that they can entice students to attend holiday classes to catch up. This is for a fee of course. The teacher can make an extra dollar from this misfeasance.

The chairperson of the Harare Commission Sekesai Makwavarara was on national television last week to announce that the problem of street people can be solved by ensuring that the city centre is “swarming” with municipal policemen.

This inventory of negative practices bears the symptoms of an economy which is failing very fast. There is desperation among workers, most of whom are content with just keeping their jobs. Industrial psychologists say in such instances workers’ productivity is greatly compromised as they engage in other activities to augment their meagre earnings. Corruption is also another by-product of this desperation. In the past three weeks, at least 20 Zimbabwe Revenue Authority officers have been arrested on corruption charges.

Magistrates have also been arraigned before the courts for receiving gifts from felons while immigrations officers stand accused of illegally facilitating the extended stay of illegal immigrants in the country.

Bringing the economy on a recovery path in this environment of despondency is the Achilles’ heel of President Mugabe’s government which is increasingly running out of options. This was manifest in Murerwa’s mid-term fiscal policy review last week. The Finance minister acknowledged that the economy was functioning in safe mode.

“The significant achievements of 2004 notwithstanding, recovery has remained slow,” he said. “Inflation relative to that of our trading partners is unacceptably high.

“Similarly, unemployment also remains a major challenge while foreign exchange constraints continue to undermine the full recovery of business activity.

“Furthermore, large-scale crop failure has exacerbated the situation, particularly in view of the agro-based nature of some of our major manufacturing industries,” he said.

This is a sure sign that the economy is decrepit. Murerwa decided to dump his desperate measures on a writhing populace. The minister introduced a myriad new taxes and levies and surtaxes across the board in a bid to raise revenue, the most notorious being the increase in VAT from 15% to 17,5%.

He introduced a 22,5% tax on cellphone airtime, 10% withholding tax on tradable securities and surtax on secondhand motor vehicles. He also introduced presumptive tax on the informal and transport sectors.

Zimbabwe is now on its last legs and Murerwa’s plan is to tax the last man standing in order to finance government’s recurrent expenditure. There is no real attempt to expand the tax base by attracting investment, expanding existing industries and ultimately cutting back on the unemployment statistics.

The tax base is shrinking as reflected in Murerwa’s mid-term policy review. Workers’ contributions, Pay As You Earn amounted to $2,67 trillion against a target of $3,54 trillion, while customs duty contributed $667,7 billion instead of the targeted $846,4 billion. VAT and corporate tax were on target, raising $2,34 trillion and $1,82 trillion against targets of $2,29 trillion and $1,17 trillion respectively.

The revenue base will keep shrinking while government’s appetite to spend remains high. The financing gap of the budget is widening but line ministries had requested Murerwa to dish out an additional $31 trillion to buy vehicles, furniture, equipment and to fund operations. And rightly so, he refused as this would have pushed the budget deficit from the current 8% to 50% of GDP and with it the mercury in the inflation gauge was set to breach the record of 622,8% achieved in January 2004.

This is the tragedy of the ruling elite in Zimbabwe. They want government to spend what it does not have. The government has to raise the required revenue most efficiently with the least waste in the collection process. Murerwa said there was a “higher incidence of smuggling and corrupt activities at ports of entry”.

The process of tax collection should be done with the least likelihood of political mischief. The tax on airtime is political mischief. Very importantly though, the process should achieve the least social cost and greatest social benefit. At the moment there is no social benefit accruing from these onerous taxes. Murerwa dished out $50 billion to finance the staging of elections for the new Senate. On the other hand, he gave the malaria control programme a mere $20 billion.

He spoke of the need to restructure the public service in order to remove “duplication, redundancy, overstaffing and abolishing all superfluous posts”. He did not mention unnecessary ministries of Interactive Affairs, Policy Implementation and Rural Housing. He dished out $50 billion to the new portfolios.

The despondency in the country can only get worse if the government fails to create the correct environment for investment and business. There is nothing wrong with government taxing income, wealth or economic transactions. There is everything wrong with taxing poverty.