THE Zimbabwe Revenue Authority (Zimra) announced in its August report that it increased revenue collections amid a deepening economic crisis characterised by company closures, downsizings, retrenchments, job losses, falling wages and salary cuts.
Zimra surpassed its August revenue target of US$267,6 million as collections of the month surged to US$307,9 million.
Zimbabwe Independent senior reporter Wongai Zhangazha (WZ) this week engaged Zimra chairperson Willia Bonyongwe (WB) to find out how the tax collector is managing to do this in a shrinking economy. Below are excerpts of her written responses:
WZ: The Zimbabwe Revenue Authority seems to be doing well in terms of revenue collection in this difficult economic environment characterised by company closures, unemployment and de-industrialisation. One would think Zimra would fail to meet revenue collection targets in this situation. What are the measures that Zimra has implemented to ensure tax compliance?
WB: In reality, other things being equal, revenue collection is a function of the Gross Domestic Product (GDP). There is a direct correlation relationship between the two. Our revenue target is actually derived from the projected GDP by the Ministry of Finance and Economic Development, taking into the historical collection efficiency. Therefore, it’s logical for you to assume that Zimra should be struggling to meet its targets like it was doing a few years ago on account of the ailing economy. To answer your question though, I would attribute the increase in revenue more to efficiency measures being implemented by Zimra. These include greater enforcement, increased automation, including completing the fiscalisation programme, which was started in 2010, accelerating the roll out of the tax management system, launching the electronic cargo tracking system, improving internal control systems and supervision, as well as fighting tax corruption. Automation has curbed value-added tax (VAT) fraud. The moratorium on the registration of small-to-medium enterprises for tax purposes has helped increase the tax base. Automation has also brought in many tax payers into the tax net because the data from the compliant payers will include information about the non-compliant taxpayers and we need to bring them into the tax net.
Our tax system is based on self-assessment, and Zimra, from time to time, subsequently carries out audits to verify the information filed by taxpayers. These audits and compliance checks have been intensified. But we have also intensified our stakeholder engagement. We want an effective conversation with the taxpayer; we disseminate information and educate the taxpayer and they give us feedback. There is no economy which can develop or thrive without high tax compliance in Zimbabwe.
We have a long way to go.
WZ: What has been the impact of company closures, retrenchments, job losses, salary cuts and inconsistent salary payments on Zimra performance?
WB: It has been bad, you will recall a few years back until last year, the report was always Zimra misses its revenue target.
Like I said before, tax revenue is a function of the economic performance and efficiency in tax administration. As Zimra we have no control over the former. Company closures, retrenchments and salary cuts do lead to the shrinking of the tax base, and hence reductions in revenue collections. Dollarisation has an adverse impact on production in general and businesses which are export-oriented in particular. The cost structure in Zimbabwe makes exports uncompetitive. So we have lost companies and revenue from the export sector, including horticulture. Those which remain are struggling and contributing little or nothing to the fiscus.
The structure of the economy has changed, and will most likely never be the same again. Many companies, especially industrial companies, have closed down and we have lost all the tax revenues from them. On the other hand, a lot more new companies have been opened, but are not tax-compliant. Our drive is to bring every company and taxpayer into the net. We are also aiming to ensure that those paying are doing so consistently and at the same rate. Improving the efficiency of tax administration is what we are trying to use to increase revenues, but there is a limit to it once you get to an optimum level of efficiency
WZ: Can you clarify the difference between tax avoidance and tax evasion?
WB: Generally speaking, tax evasion refers to the illegal non-payment or underpayment of tax. Tax avoidance, on the other hand, is the arrangement of one’s financial affairs to minimise tax liability within the law. The difference between tax evasion and tax avoidance is that evasion is illegal, while avoidance uses legitimate loopholes to minimise the tax liability.
WZ: What progress have you made on the tax reform and improvement system?
WB: Quite significant progress, although we do have capital constraints to roll out the system to where we wish to go. On the fiscalisation side, we have now connected the old and new gadgets to our system, some are real-time, others have a lead period. We have also doubled the number of suppliers of fiscal devices, who now include the Zimbabwe Revenue Authority. Why Zimra? Simply to have control of the pace, and to improve the availability and affordability of the fiscal devices.
Substantial progress has also been made in the implementation of the Invoice Management System, especially with regards to its integration with existing operating systems. Governance issues have been improved.
WZ: How prevalent insofar as Zimra is concerned is smuggling and what has been the impact of that on revenue collections? Is smuggling undercutting Zimra tax collection measures?
WB: If one moves in Harare at night, it is obvious that smuggling is very rampant. Some of the smuggling goes through the designated ports of entry, especially Beitbridge (buses at night and omalayitsha), others, especially mabhero (second-hand clothes), through undesignated entry points. The Limpopo riverbed, smuggling is done during daylight. Burma valley, Penhalonga, Gonarezhou, Plumtree — our borders are porous. The impact is huge, but because it’s an illegal activity which is undocumented, the real cost is unknown really. What we have tried to quantify is done through the borders in connivance with our officers. More than one billion annually would be my estimate.
I have said the fight against smuggling is beyond the capacity of Zimra alone, we need the entire law enforcement agency, we need deterrent fines, we need a special court to deal with these issues speedily. Government has formed an anti-smuggling inter-ministerial taskforce to increase border patrols. But they have to be adequately resourced to curtail the use of illegal and undesignated crossing points. Zimra does post-importation audits and compliance checks to verify whether imported goods were properly cleared for customs purposes, but we are battling. The border infrastructure itself is a major limitation for anti-smuggling.
WZ: How effective has been the Zimra whistleblowing system?
WB: There are two issues: we have the hotline and this has been very effective from people within Zimra and from taxpayers.
We continue to receive substantial support from members of the public who blow the whistle on non-compliance with the fiscal laws which the Zimbabwe Revenue Authority administers. We are grateful to those people who are concerned enough to inform us.
We have been able to assess about US$200 millions last year arising from the hotline and whistleblowers
WZ: After Statutory Instrument 64 (SI64), there appears to be a lot of various goods from outside the country being sold on the black market. How has this affected the collection of revenue?
WB: SI64 of 2016 removed some goods from the Open General Import Licence, implying that the affected goods can only be imported upon production of requisite import licences, which are obtainable from the Ministry of Industry and Commerce. The goods are sold on the black market, which is not formal, hence all revenue heads, such as income tax, VAT and Pay As You Earn, to mention a few, are negatively affected.
WZ: How far has Zimra gone with e-services, enhancing automation, invoice management and electronic cargo system?
WB: Zimra’s automation programmes are progressing well, although we have hitches here and there, especially on due dates. The goal is to avoid manual systems and minimise contact between the taxpayer and the revenue officer to reduce opportunity for corruption. The electronic cargo tracking system is still in its infancy. It was facing strong resistance from staff and management, but the past week or so, we are seeing a significant improvement in the sealing of high risk cargo from 9-50 to almost 300 for Beitbridge, but the aim is to reach 100% sealing of same.
WZ: What do debt resurgence measures entail and how does the control of the refund bill or system work?
WB: Zimra does not expect any company to close because of Zimra debt because we are in a long-term relationship with taxpayers. We have made a conscious decision to manage the tax debt by negotiating for payment plans with taxpayers and closely monitoring adherence to the agreed terms. However, the expectation is that the current obligations are met. Garnishee orders are a last resort after exhausting all other means of engaging the taxpayer for settlement of the tax debt. On the ground, however, because of unwillingness or inability to pay tax, taxpayers tend to change banks or bank numbers. They bank business funds into personal accounts or into different accounts. In such cases Zimra will just garnish the account. My advice is to go back and try to engage Zimra in good faith, don’t try to deceive.
Controlling the refund bill mainly involves ensuring that any claims for tax refund are not fraudulent and that the correct amounts are refunded to the correct people within timeframes specified by the law.
WZ: When will you have a substantive Commissioner General?
WB: Now that we have finalised our issues with Mr Pasi (Gershem), the process is underway to find a replacement, in line with the Revenue Act.
WZ: How far has Zimra gone with lifestyle audits and what have been the achievements so far?
WB: Asset declarations and lifestyle audits on members of staff (who include both management and non-managerial employees) are ongoing and they are part of strategies that Zimra employs to curb corruption. Lifestyle audits are meant to identify any cases of unjust enrichment through corruption, which are then appropriately dealt with in accordance with the Authority’s Code of Conduct and the laws of the land. Lifestyle audits are routine; they have no ending, it’s a tool used by every revenue authority. In Rwanda it’s quite rigorous and includes declarations of close members of the family, including the spouse’s relatives, and it has been very successful. There a few things we can copy from them.