HomeAnalysisFrantic taxation not the solution

Frantic taxation not the solution

AS the economy continues to sink into the doldrums amid a wave of company closures and retrenchments, inevitably shrinking government revenues, the authorities are increasingly becoming desperate to squeeze income from hard-pressed businesses and individual taxpayers.

Zimbabwe Independent Comment

Although government has announced the suspension of withholding tax on farmers, it recently imposed an array of desperate taxes, including on commuter transport operators, hair-dressers and driving school owners, as well as informal businesses. Regressive taxation will not address Zimbabwe’s economic problems. As we have repeatedly said, what is needed is a holistic solution, tackling the political and economic underlying issues. Tinkering will not help anything.

The most important objective of taxation is to raise required revenues to meet state expenditures. Apart from raising revenue, taxes are considered as instruments of control and regulation to influence the pattern of consumption, production and distribution. Taxes thus affect an economy in various ways, although their effects may

not always be good. There are some bad effects of taxes too. The sort of taxes Finance minister Patrick Chinamasa has been coming up with of late are just bad. They further impoverish the very same people government has rendered desperately poor through leadership and policy failures.

As the People’s Democratic Party said, for instance, to produce tobacco, farmers incur huge costs buying inputs, including chemicals, seed, equipment and insurance.

“Taxing the farmers without factoring these issues will only result in them failing to produce at a similar scale or expand in the following season,” said the party led by former Finance minister Tendai Biti. “Many individuals already have their money withheld by the floors therefore must be reimbursed.”

Chinamasa’s taxes are further affecting the ability to work, save and invest by the remaining handful of people still gainfully employed or running businesses.

Imposition of unprogressive taxes results in the reduction of disposable income.

Taxpayers in Zimbabwe now have a feeling that every tax is a burden. This psychological state of mind has become a disincentive on people’s willingness to work, save and invest. They feel it is not worth putting in more effort because so much of their extra income would be taken away by an incompetent, corrupt and wasteful government in the form of unjust taxes. However, if taxpayers feel their taxes are being put to good use they work harder, save more and invest further. The environment in Zimbabwe does not allow all this.

The trouble is government wants everyone to tighten their belts, but not President Robert Mugabe and his ministers who still squander public funds on expensive cars, houses and other benefits with reckless abandon.

Hence, when Chinamasa last year proposed to drastically cut recurrent expenditure and reduce the unsustainable wage bill, he was blocked. He had also proposed a raft of cost-cutting measures, including slashing salaries of cabinet ministers and other employees, closing embassies, cutting foreign trips and a massive retrenchment

exercise to lay off 25 000 civil servants. Cabinet blocked him.

As long as the authorities fail to address the root causes of the problem, the nation is doomed. Ruthless taxation is not the solution.

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