Zimra recognises economic realities


Last week the chairman of the board of the Zimbabwe Revenue Authority (Zimra) issued a report on the revenue collections achieved in the first half-year of 2013.

Column by Eric Bloch

Of significant merit in that report was a realistic assessment given on the stressed circumstances of the Zimbabwean economy.

In contrast to most arms of government, which recurrently fail to recognise economic realities, the Zimra report comprehensively recognised actualities of the key constraints which have hindered attaining economic substance.

At the outset of the report, Zimra chairman Sternford Moyo states: “The first half of 2013 has seen the Zimbabwean economy being characterised by liquidity constraints, power shortages, retrenchments, scaling down of operations and company closures, among many other challenges.”

These factors precluded Zimra attaining its revenue collection targets, and thus contributed to the impecunious state of the national fiscus (although irrefutably the greater causes of governmental near bankruptcy have been excessive expenditures, oft unproductively incurred, and the ongoing magnitude of corruption within ministries).

Nevertheless, Zimra nearly attained its overall collections target, raising US$1,66 billion against a target of US$1,67 billion, resulting in a marginal negative variance of 1%. The greatest source of the revenues raised was Value Added Tax (Vat), which yielded US$517,2 million for the fiscus.

Second greatest was Pay As You Earn (Paye) revenues of US$347,3 million, followed by Excise duties of US$235,5 million. Other revenues included company tax, amounting to US$185,1 million, customs duty of US$172,7 million, mining royalties of US$81,1 million, including withholding taxes on dividends and interest, capital gains tax, tobacco levy, and carbon tax whose revenues aggregated to US$118,2 million.

Among meaningful explanations enunciated in the report for collections not reaching targets, the Zimra chairman stated that Vat collections in the half-year amounted to US$517,2 million, against a target of US$535,7 million, and that the subdued performance was due to low capacity utilisation and the general liquidity constraints in the economy.

The report suggests that, in particular, “cost of living adjustments awarded by employers were not sufficient to spur the anticipated revenues through Vat”, and that “liquidity constraints also hampered the performance of Vat on imports, as companies lacked adequate financial resources to import goods”.

In like manner, customs duty collections amounted to US$172,7 million, as against a target of US$180,3 million, representing a negative variance of 4%. Zimra correctly states that the target was not achieved “because importations were subdued due to liquidity challenges in the economy”.

However, one must authoritatively surmise that a further major contributant to the collection under-performance was the magnitude of imported goods that evaded customs duty (and Vat) by virtue of smuggling (much enabled by bribery of some customs officials), and supplemented by the extent of entry into Zimbabwe of imported goods through borders not manned.

In addition, it is not credibly refutable that many products manufactured in the Far East enter Zimbabwe disguised as allegedly manufactured in Sadc, and therefore exempt from customs duty.

Mining royalties also fell far short of target, amounting to US$81,1 million, as against a target of US$107,8 million, and this “was mainly due to the softening of international mineral prices, especially gold and diamonds”.

But this was unstated in the report undoubtedly as a consequence of ongoing extensive smuggling out of the country by numerous small-scale gold panners, and of diamonds.

To a significant extent, the shortage of the revenue collections is, as correctly stated by Zimra’s chairperson, due to the fragile state of the economy, with gross unemployment, low consumption levels, heavily diminished production in most economic sectors.

However, another contributory factor is that Zimbabwe’s direct and indirect taxation policies are non-conducive and counter-productive to stimulating substantial economic growth, and greater revenue inflows to the fiscus.

Among the prime examples of such counterproductive policies is that government persists in imposing Income Tax on incomes which are below the Poverty Datum Line.

Over and above the magnitude of the consequential demoralisation of income-stressed workers occasioned by such taxation, compounding their inability to fund essential needs, were the taxes applicable only on incomes above the PDL, the recipients of those incomes would have somewhat greater spending power.

That would yield increased revenue flows to the fiscus by way of Vat on the increased volumes of sales made possible by the enhanced levels of net employment income. Concurrently, such additional sales would yield greater profits to commercial enterprises, thereby generating further tax revenues.

Moreover, the enhancement of worker-morale would facilitate increased productivity, which would have downstream revenue flow benefits to the fiscus.

Many of the economic ills so correctly identified in the Zimra report would also be progressively eliminated if government were to address constructively the motivation and generation of foreign investment, instead of discouraging such investment by constantly intensifying diminution of investment security.

Practical modification (not repeal!) of Zimbabwe’s Indigenisation and Economic Empowerment legislation, and the implementation thereof, belated compliance with Bilateral Investment Promotion and Protection Agreements, and realignment of taxation policies with those prevailing elsewhere in the region would be highly conducive to attracting substantial investment, which would be a stimulant for increased employment, trade volumes (including exports), and hence for greater taxation inflows (direct and indirect) to the fiscus.

Government’s rapacious needs for tax revenues would be markedly reduced if corruption within the corridors of power was vigorously contained, and if there would be vigorous curtailment of unproductive expenditures by the state.