HomeAnalysisTaxing the poor unhelpful, cruel

Taxing the poor unhelpful, cruel

By some estimates, between US$3 billion and US$6 billion is circulating in Zimbabwe’s informal sector outside formal banking channels and, according to reports from the recently held Pre-Budget Seminar, Finance minister Patrick Chinamasa is now coveting this money.

Zimbabwe Independent Comment

The Treasury chief, presiding over empty government coffers, revealed he is sharing notes with Rwandan government officials and has sent a delegation to Ethiopia to study how these fellow African nations have managed to introduce taxation systems for the informal sector.

To a broke government, taxing the informal sector may sound like a great idea. But the authorities should proceed with caution. There are no easy solutions to Zimbabwe’s multi-faceted crisis.

An overwhelming majority of informal traders such as street vendors and backyard business operators are extremely poor people with no assets, savings or social safety nets to fall back on.

A quick look at the poverty statistics from the United Nations proves beyond doubt that low-income Zimbabwean families are already too poor to be taxed.

This is a low-income, food deficit country, ranked at 156 out of 187 on the 2014 United Nations Development Programme Human Development Index. Currently, 72% of the population live below the national poverty line (living on less than US$ 1,25 per day).

It does not end there. Thirty percent of the rural poor are considered to be “food poor”, or “extremely poor”. The UN confirms that food and nutrition security remain fragile and subject to natural and economic shocks in Zimbabwe, chronic undernutrition remains relatively high, despite some improvements. Amid such devastating poverty, how on earth can the government introduce taxes for informal businesses, whose operators are already wallowing in deprivation?

We must never lose sight of the fact that small and medium enterprises (SMEs) are currently paying tax, one way or another. They are saddled with value-added tax, import duty, council levies and a plethora of other taxes.
Blaming the small businesses for the state’s ever-dwindling revenue base and collections is unhelpful. It would be more constructive to ask why they are not formally registered in the first place.

The latest World Bank Ease of Doing Business rankings show that Zimbabwe is not adopting the reforms necessary to facilitate the registration and establishment of small businesses.

It seems utterly inconsiderate to burden impoverished SMEs with a raft of new taxes. The hypocrisy of it all is that, while the taxman is now targeting the small operators for unreasonable taxation, the political elite and their cronies are left free to evade or even avoid tax and engage in money laundering and other illicit financial dealings. Instead of bullying a poor widow who is struggling to eke out an honest living on the tough streets, why is the tax collector conveniently turning a blind eye to wheeler-dealers building grotesque 50-roomed mansions in the leafy suburbs without probing the source of such funds?

Before adopting what appears to be a rashly expedient decision to introduce new taxes for the informal sector, the government has a responsibility, in terms of the dictates of good governance and administrative law, to widely consult before imposing extortionist taxes.

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