Zimra misses its 2016 revenue collection target

Zimbabwe’s economic implosion, highlighted by massive deindustrialisation and company closures, has seen the country missing its modest 2016 revenue collection target by US$145 million, signifying a distressed economy.

Taurai Mangudhla

Indications are that the situation could worsen in the absence of structural reforms that stimulate production.

Following successive years of missed targets as the economy continues on a slippery slope, the Zimbabwe Revenue Authority (Zimra) had set conservative targets for 2016, but the prevailing environment still saw revenue heads underperforming.

The country’s economy is becoming more informalised by the day, making it difficult for government to collect taxes while companies continue shutting down due to operational challenges that have narrowed profit margins for players, leaving very little for government to tax.

According to Zimra’s 2016 fourth quarter report, annual gross collections amounted to US$3,462 billion, which was 96% of the targeted US$3,607 billion. The 2016 target was, therefore, missed by 4%.

Net collections amounted to US$3,248 billion but were 91,05% of the target.

Annual collections from company tax tumbled by close to 20% at the end of the year compared to the same period the previous year. Corporate income tax debt grew by more than US$276,5 million as companies struggled to meet their tax obligations to close 2016 at US$751,49 million, compared to US$474,97 million in 2015. Corporate tax fell 19,77% from 2015 to contribute US$340,72 million on total collections during the year, which was 92,99% of the targeted US$366,4 million for 2016.

“The performance of the tax head can be attributed to low profitability and tax evasion by companies. Low profitability due to cash shortages, low industrial capacity utilisation, high cost of utilities and insufficient credit lines,” Zimra chairperson Willia Bonyongwe said in a statement.

According to statistics, at least 236 companies shut down by August last year.

“The major driver to revenue collection is always the performance of the economy, but unfortunately the economy performed badly again in 2016,” Bonyongwe said.

Mining royalties missed collection targets by 42,8% while net customs collections were less than the target by 26,1%, individual tax missed targets by 8,2% while corporate tax was 7% less than projections. Excise duty and carbon tax also missed targets by 14,8% and 7,7% respectively.

Zimra said the use of the strong US dollar makes Zimbabwe’s local production and exports uncompetitive, and this exacerbates the trade deficit, which has come down by over 20% but still remains unsustainably high.

Meanwhile, Zimra said, the country experienced serious illegal outflows or externalisation leading to low liquidity which developed into a serious cash shortage by the end of the year while the budget deficit continues to widen as the public sector seriously crowds out the productive sector for the limited US dollar available.

“As a result of the above and in the absence of any significant Foreign Direct Investment (FDI), the economy had low investment levels, declining levels of employment and low income levels. Consequently, Aggregate Demand for goods and services continued to fall and this had an adverse impact on all tax heads during the year but particularly during the fourth quarter of 2016,” Zimra said.

Year-on-year inflation rate during 2016 moved from a negative rate of 2,2% in January 2016 to a negative rate of 1,1% as at the end of November 2016, but prices rose noticeably in the fourth quarter of 2016 arguably due to the introduction of bond notes.

Economist Chris Mugaga said underperformance of Zimra revenue collections can be attributed to a slowing economy which has reached a plateau under the multi-currency regime, an ever-expanding informal economy which means most companies are choosing to operate underground and dwindling bottom lines for companies, meaning the taxable profit base has become narrower, among other factors.

“There is need for reviewing the taxation policy of the land to suit the new emerging economy since we have a significant populace of business people who are not yet in the Zimra books,” Mugaga said.

“Aggregate demand is waning which is manifesting itself in reduced consumption spending which is in disequilibrium with the government spending as well as depressed investment spending,” Mugaga added.

He said smuggling remains a challenge and has cost government as much as U$1,5 billion annually in potential revenue through foregone duty and value-added tax since most smuggled goods are usually traded on the black market.

The 20% slump in corporate tax, Mugaga said, is mainly due to depressed profitability.

“In addition, the reduced corporate tax is also a reliable barometer of how capacity utilisation has nosedived with most corporates facing an unfair business environment since their major competitors are smugglers who trade on the black market,” Mugaga said, adding “once this informal economy thrives, due to the low cost of production in the informal industry, they pose unfair competition to established firms thus eroding the top line of big players.”

Economist Prosper Chitambara said the underperformance of revenue heads in 2016 reflects a subdued economy mainly as a result of drought which affected the economy.
This year, he said, there is hope for improved agricultural performance which is seen driving economic growth.

“We are projecting the economy will improve slightly and will grow by about 1,2%,” Chitambara said.

2 thoughts on “Zimra misses its 2016 revenue collection target”

  1. local producers support network says:

    The dominant contributor to the fiscus has been the formal industry and with de-industrialisation the revenue heads have fallen. The economic activities are now shared between the formal and informal sector and therefore the Revenue Authorities have to incorporate the informal sector into revenue collection. It may seem diifficult but its possible if Zimra links to Council activities such as the issuance of Trading Licences, Shop Licences. Shop owners are in business for a profit but few declare Income Tax, PAYE or even make contributions to NSSA.

  2. Dzingwena says:

    Ko ZRP (ZIMBABWE REVENUE POLICE),how did it perform?

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