HomeAnalysisRegressive taxes impoverish the poor

Regressive taxes impoverish the poor

FINANCE minister Patrick Chinamasa’s plea to parliamentarians for proposals on what he should tax after announcing the shelving of value-added tax (VAT) on basic goods yet again shows government’s misplaced priorities and fiscal indiscipline.

By Kudzai Kuwaza

Chinamasa introduced Statutory Instrument 20 (SI 20), which imposed 15% VAT on rice, meat, potatoes, margarine, cereals and mahewu — a move that sparked national outrage.

Although he announced in parliament last week the shelving of the tax, it is yet to be scrapped. This follows a raft of other taxes which include a 5% levy on airtime when he presented the 2017 national budget last year.
Chinamasa insisted he had to get something else to tax in order to generate revenue to pay salaries and finance other activities.

His pronouncement was bad news to Zimbabweans who are struggling to make ends meet.

The general feeling is that the finance minister should instead be looking at other avenues to grow the national cake such as introducing policies that stimulate production and lure investors.

Chinamasa should be looking at ways of cutting government expences through reducing the civil service wage bill and cutting down on perks of senior government officials instead of further taxing suffering Zimbabweans.

Government revenue is being whittled down by government’s bloated workforce which includes thousands of ghost workers. Salaries are gobbling up more than 90% of revenue, leaving very little for capital expenditure and social services.

Endless foreign trips by senior public officials are worsening the perilous state of government coffers. President Robert Mugabe, who should be leading by example, is the number one traveller. His domestic and foreign trips blew away US$36 million in the first 10 months of 2016.

These are the issues which Chinamasa should be trying to deal with rather than introducing punitive taxes which pile the misery on the poor.

The failure to wean off parastatals which have been bleeding the fiscus has also contributed to the depletion of the country’s coffers. This has left very little for vital government obligations which include the rehabilitation of the health sector where public hospitals fail to provide basic services, leaving patients having to buy their own supplies.

Chinamasa’s efforts in last year’s mid-term fiscal policy statement to cut down costs through a cocktail of measures that include cutting salaries of government ministers, closure of embassies, retrenching civil servants and suspending payment of bonuses for civil servants have been thrown out by Cabinet.

His proposals are seen by some Zanu PF hardliners as attempts to instigate Arab Spring-style uprisings, as they would result in unemployment and reduced salaries.

The punitive tax regime continues to target struggling Zimbabweans while sparing the country’s elite. It has been necessitated by the severely limited fiscal space for government as a result of company closures and retrenchments as well as failure to implement austerity measures within government.

Last year alone, at least 260 companies from various sectors of the economy which include food, clothing and engineering closed shop, resulting in the loss of thousands of jobs. This adds to the closure of 4 610 companies, leading to the loss of 55 543 jobs between 2011 and 2014.

Nearly 9 000 workers have been retrenched in 2015 and 2016. In 2015, a total of 5 333 workers were laid off with 3 510 more retrenched last year, bringing the total to 8 843.

This adds to the more than 6 000 who were retrenched in 2014 as well as thousands who were dismissed using the July 17 2015 ruling which allowed employers to dismiss workers on three months’ notice without a retrenchment package. While trade unions have estimated that around 30 000 were dismissed using the ruling, employers armed with a survey have argued that 9 115 workers were affected.

The impact has been devastating with National Social Security Authority chairman Robin Vela revealing last year they lost close to 18 000 contributors due to retrenchments and company closures as at September 31 2016. The Zimbabwe Revenue Authority missed its revenue targets for last year. Annual gross collections amounted to $3,462 billion, which was 96% of the targeted $3,607 billion.

Individual and corporate tax revenues were down by 5,31% and 19,77%, respectively, due to a continued decline in the business environment in the country.

The plunge in government revenues is also a result of government’s flawed policies, especially the indigenisation law, which have scared away investors. Foreign direct inflows plunged from US$545 million in 2014 to US$421 million in 2015.

President Mugabe was forced in April last year to clarify the indigenisation policy, eight years after signing it into law. However, those clarifications are yet to be factored into the indigenisation law almost a year after Mugabe’s clarification.

Economist Prosper Chitambara said there is a need to cut the size of both cabinet and civil servants, given the lack of resources.

“It would help considerably if the size of government and the size of the civil service is cut commensurate to the size of the population and economic growth,” Chitambara said. “It does not make sense to have a bloated government and workforce when you do not have the resources.”

He added that parastatals which contribute significantly to the fiscus in other countries have hemorrhaged the fiscus in Zimbabwe.

“Parastatals have been a big letdown,” Chitambara said. “In China state-owned entities contribute 45% to GDP while state-owned entities in this country have been depleting resources.”

Chitambara’s concerns over state-owned entities are not without foundation. Parastatals such as Air Zimbabwe and National Railways of Zimbabwe have been reduced to almost shells as a result of years of corruption and incompetence.

Chinamasa has on several occasions spoken of plans to privatise state entities which continue to bleed the fiscus.

The parastatals earmarked for restructuring include the Agricultural and Rural Development Authority, Cold Storage Company, Grain Marketing Board, Air Zimbabwe, TelOne, Civil Aviation Authority of Zimbabwe, National Railways of Zimbabwe, Industrial Development Corporation of Zimbabwe, Zimbabwe National Water Authority and Zimbabwe Power Company.

The government’s taxing regime is triggered only for consumption at the expence of productivity, according to economist and Buy Zimbabwe chairperson Oswell Binha.

“Taxation is a way by government to elicit revenue and when you tax everyone with no obligation to pay back, it is the easy way out,” Binha said.

“Whereas taxation is usually used as a mechanism to trigger productivity, our taxation is consumptive. Here everyone is taxed to the bone just for the money to be abused, which is sad.”

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