Falling revenues: Zim sinks deeper

YESTERDAY’S announcement by the Zimbabwe Revenue Authority (Zimra) that net revenue collections in the first quarter of the year were 16% below target at $724 million clearly reflects a shrinking tax base as a result of continued contraction of the economy amid a wave of company closures and job losses.

Zimbabwe Independent Comment

The failure by the tax collector to meet revenue targets warrants serious reflection on the state of the economy by government and citizens.

That more than 80 companies have closed in the first quarter of 2016, as we reported last week, just goes to show how dire the situation is. Thousands of companies have in fact shut down in recent years.

This has resulted in the loss of corporate and individual tax revenues, while reducing people’s buying power. In turn this has severely reduced aggregate demand and thus low production. This feeds into the current cycle of economic and liquidity problems which needs to be broken for recovery and growth to be possible.

As Zimra indicated, the deficit in Pay-as-You-Earn revenues which at the end of the first quarter stood at $692 million up from $578 million last year shows companies are struggling to pay workers on time or have closed shop.

“This largely reflects the incapacity of most companies to pay, some of which may no longer be operational. In the short term, this tax head will remain under pressure and performance is not expected to improve all things remaining equal,” Zimra chairperson Willia Bonyongwe said yesterday.

Zimbabwe’s tax collections are among the highest in sub-Saharan Africa and therefore there is not much scope to squeeze more revenues without an adverse impact on economic activity.

Authorities’ planned review of the design of the tax system should focus on broadening the tax base, particularly on VAT, with a view to shifting the burden of taxation from income towards indirect taxes. Improvements in tax administration should aim at simplifying procedures and addressing areas where collection efficiency can be improved.

Besides, government must take steps to increase transparency and accountability in the diamond industry, which should ensure a meaningful contribution to Treasury. Wasteful expenditures like buying expensive furniture, cars, and unproductive foreign trips must stop.

Zimra’s failure to meet targets also spells disaster for government in terms of paying civil servants and service delivery. There is no doubt that the top priority for government should be lowering the size of the wage bill, which currently gobbles over 80% of revenues, while leaving meagre sums for capital expenditure. The issue now should be how, not whether, to do it in a credible and sustainable way.

The recent audit conducted by the Civil Service Commission shows that there are ghost workers who are part of the 550 000-member strong civil service. These must be removed from the wage bill.

More than 75 000 ghost workers, mostly unqualified Zanu PF militias and supporters, were unearthed in the civil service through a comprehensive payroll and skills audit done by Ernst & Young (India) on behalf of the Public Service ministry in 2011. The ghost workers included 6 861 employed in one day in a single ministry.