HomeBusiness DigestBusinesses in distress: Zimra misses revenue collections by US$220m

Businesses in distress: Zimra misses revenue collections by US$220m

Companies and individuals are struggling to pay outstanding tax liabilities to government and are sinking deeper in arrears, the tax collector has said.

Taurai Mangudhla

Zimbabwe Revenue Authority (Zimra)’s annual revenue performance update for the year ended December 31 2015 shows that Zimbabwean companies are feeling the pinch of economic challenges such as a negative foreign investor perception and tight liquidity conditions that have forced some players out of business with those remaining either struggling to stay afloat or unable to meet their tax obligations.

Chart shows Zimra’s actual collections versus targets for the year ended December 31 2015. Source: Zimra annual tax report.
Chart shows Zimra’s actual collections versus targets for the year ended December 31 2015. Source: Zimra annual tax report.

Industry distress, which forced Finance minister Patrick Chinamasa to revise economic growth projections from 3,2% to 1,5% and revenue collection targets from US$3,76 billion to US$3,46 billion in 2015, have also seen Zimra missing its annual tax collection targets for 2015 by US$220 million and falling 3% below 2014 figures at US$3,5 billion, an indication there is no fiscal space.

According to the annual tax report, the amount owed to government by the tax paying community had risen by close to US$600 million to US$1,97 billion in the 12 months under review due to growing distress among tax payers.

Zimra board chair Willia Bonyongwe said revenue collections for 2015 largely reflected the subdued state of the economy.

She said this also showed Zimra’s tax collection limitations and underscored the need for digitalisation and investment in new technology such as cargo tracking systems.

“The year 2015 started with a debt of US$1,38 billion which, after incorporating recoveries and new debts, the figures rose to US$1,97 billion as at December 31 2015,” said Bonyongwe.

“This does not reflect inability to collect by Zimra which has been engaging the debtors. Instead, the rise in this figure reveals the level of distress within the tax paying community.”

By Bonyongwe’s own admission in the report, major challenges facing Zimbabwe’s economy remain unresolved.

She said these challenges include erratic supply and high cost of energy, the high cost of capital and unavailability of adequate capital and the use of the relatively strong United States dollar among other factors had jointly eroded the country’s competitiveness.

“Company closures and job loses escalated during the year under review and this is a continuing trend. The situation was exacerbated by the plummeting commodity prices on the international markets and the winding off of quantitative easing in the United States of America,” Bonyongwe said.

“These economic variables negatively affected profitability of companies and client’s ability to pay debts, resulting in generally low trends of revenue collection.”

According to government, 4 610 companies closed down between 2011 and 2014, resulting in the loss of 55 443 jobs. A July 17 Supreme Court ruling, which allowed employers to dismiss workers on three months’ notice without paying a retrenchment package, has also resulted in the loss of more than 30 000 jobs across all sectors of the economy, according to trade unions.

In an analysis of tax heads performance, Zimra said individual tax, customs duty, Vat on local sales, withholding tax on contracts, mining royalties, company tax and other taxes had missed collection targets.

Zimra said individual tax which includes Pay As You Earn (Paye) missed the annual collections by 7% and was 15% below previous year collections at US$777,83 million. The revenue collector said Paye debt as at the end of 2015 was US$591 million compared to US$393 million in 2014.

“The revenue head was negatively affected by retrenchments and reduction of remuneration packages by companies during the year as they embarked on initiatives for survival. This trend is expected to continue,” said Bonyongwe.

Corporate tax, being tax on company and business profits, contributed US$424,7 million to tax revenues in 2015, which was 5% below target. The corporate income tax debt was US447,97 million at the end of December 2015, up from US$188,68 million the previous year.

“The performance of the revenue head was negatively affected by low profitability of local industry and closure of some companies. The future performance of the revenue head is not bright, other things remaining equal (and) there is need for structural changes and concerted national effort to stimulate economic recovery for corporate tax to rise again,” Bonyongwe added.

VAT on local sales debt amounted to US$722 million at the end of the reporting period, up from US$238, 9 million the previous year.

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