HomeAnalysisNew tax regime: Govt robbing the poor

New tax regime: Govt robbing the poor

THE introduction of a raft of new taxes for the informal sector has highlighted the government’s massive desperation for revenue in the face of limited fiscal space.

By Hazel Ndebele

Economic commentators say it also reveals the authorities’ insensitivity towards long-suffering citizens who are struggling to earn a living in a tough economic environment.

The Finance Act of 2017, promulgated through the Government Gazette three weeks ago, introduced taxes for most informal businesses. Affected businesses include taxi and commuter omnibus operators, hairdressers and cross-border traders. The new taxes are with effect from January 1 2017. Treasury is currently struggling to fund capital projects with wages accounting for more than 90% of revenue. Government has also been struggling to pay its workers on time due to limited funds. Over the years Treasury has had budget overruns with no sign of improvement.

The milking of struggling informal sector traders by the tax collector is a damning indictment of government’s dismal failure to revive the economy through policies that lure investors and boosts production.

Under the new taxes, hairdressers will pay US$10 per chair per month while informal cross-border traders will fork out 10 percent of the value of the goods imported.

Commuter omnibus operators with vehicles which carry between 15 and 25 passengers will pay US$45 per month while those with vehicles with a carrying capacity between 26 and 36 passengers will fork out US$70 per month.

Taxi cabs will pay US$25 per month per for a seven-seater while those with haulage vehicles carrying between 10 tonnes and 20 tonnes will part with US$200 per month. Goods vehicles carrying more than 20 tonnes will be levied US$500 per month.

The taxes have attracted broad criticism as they are seen increasing the burden on the public. Commuter omnibus operators have also warned of a hike in fares as a result of the taxes coupled with an increase in traffic fines at a time police roadblocks are on the increase.

Instead of taxing the poor to death, analysts say government should be looking at implementing proposals made by Finance minister Patrick Chinamasa to cut government expenditure in his 2016 mid-term fiscal policy statement.
Chinamasa proposed civil service retrenchments, salary cuts, scrapping of bonuses and closure of some embassies as part a package of austerity measures. He proposed that government retrench 25 000 civil servants, slash salaries of cabinet ministers and cut down on foreign travel.

Chinamasa said conditions of service should be reviewed, including the allocation of cars, fuel and airtime while also proposing the taxing of allowances.

In his US$4,1 billion 2017 budget presentation, Chinamasa said government is working on addressing the fiscal problems it is facing. The measures included a freeze on public service employment and salary hikes. “In tandem with the above, government will also start addressing the fiscal gap through a number of expenditure management measures backed by revenue-ncreasing interventions anchored on stimulation of production,” Chinamasa said.

“Further to this, the restrictions on hiring, continuous monitoring and audits for flushing out ghost workers, as well as the restructuring of the public service, are essential measures which will be maintained in order to manage the wage bill as a key component pushing up expenditures.”

However, Chinamasa’s proposals were blocked by some Cabinet ministers who believe the measures would alienate voters ahead of next year’s general elections.

Economist Vince Musewe said the newly-introduced taxes highlight the government’s desperation.

“This shows desperation of this government as it seeks revenues. If the funds were being spent productively, it would be better, but we all know it will merely go towards consumption,” said Musewe.

“Taxing the poor and struggling to fund a government that does not meet the needs of citizens is effectively stealing from the poor to fund lifestyles and not production. This rent-seeking behaviour is typical of dictatorships and Zimbabweans must realise that unless they do something about this, the situation is most likely to get worse.”

Economist and Buy Zimbabwe chairman Oswell Binha said government should address issues pertaining to the reduction of expenditure and eliminating policy inconsistencies in order to revive the economy, as well as unlock funding.

“Developing economies have both those in formal sector and those in small and medium-sized enterprises (SMEs) religiously paying taxes. However, their governments do not depend on those funds from the SMEs. In Zimbabwe, taxation of the informal sector is a manifestation of a shrinking tax revenue base such as the Pay As You Earn tax and so forth,” said Binha.

“Unfortunately our government is introducing these taxes as a way to look for money to spend on employment costs.

However, these SMEs are not dependable as they can just close when things get tough. What government should do is to reduce and depoliticise expenditure which goes to salaries. It is important for government to cut all unnecessary costs and pour those funds into productive sectors.”

The informal sector has become a major source of economic growth in Africa. Countries such as Mauritius also tax the informal sector, ensuring that it contributes meaningfully to economic development. However, Mauritius, whose unemployment rate is 7,5%, is one of Africa’s thriving economies. Zimbabwe’s unemployment rate, according to the International Labour Organisation, is a whopping 95%.

Mauritius has benefitted from a long history of political stability, good governance and progressive leadership as well as an open and flexible regulatory system and it is now Africa’s most competitive economy with a GDP of over US$10 billion.

Economic progress in Mauritius has been facilitated by a stable macro-economic environment, prudent policy decisions and openness to competition unlike Zimbabwe which still has to address some of those issues. It is estimated that between US$3 billion and US$7 billion is circulating in the fast-expanding informal sector in Zimbabwe, money which the broke government is anxious to lay its hands on through the introduction of new taxes.

Bulawayo-based social commentator Dumisani Nkomo said government’s desperation for money is the main reason for taxing the informal sector. He said just like the proliferation of roadblocks, the new taxes were a fundraising tool.

Nkomo said the government’s approach was wrong. “Instead, government should fix the economy, that is the macro-economic fundamentals which address structural issues of confidence and investment which will propel production and thus avail a broader revenue or tax base instead of squeezing water from a rock.”

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