A ZIMBABWE Revenue Authority (Zimra) third quarter report released on Monday showing corporate tax trailed individual tax contributions could point to massive tax evasion, according to analysts.
They said the report exposed how corporate failures were beginning to undermine State revenues, with potentially dire implications.
Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer, Christopher Mugaga was frank in his reaction to this week’s statistics, saying companies must be offered tax relief to help them cope with an economic crisis that has been compounded by the outbreak of Covid-19.
But Tapiwa Sibanda, head of strategy at Trade Winds, said the gruelling economic crisis highlighted by foreign and fuel shortages had precipitated high level tax evasion.
“It is not a normal situation to have individuals contribute more taxes than corporates,” Mugaga said.
“It could also show how deep the informal sector is. It shows that tax relief measures are required to save companies. Government has to offer significant tax relief to businesses,” he said.
Zimra statistics showed that the tax collector beat targets by 27% after collecting ZW$57 billion (US$701,1 million) during the period, against a target of ZW$44 billion (US$541,2 million).
But tax inflows from companies and mining royalties fell far short of what individuals contributed through Value Added Tax (VAT) and other revenue heads.
Taxes from firms ended the period at 14,63% of total revenue, against 15,26% remitted by individuals, with royalties coming in at 3,33%.
“It shows how individuals are carrying the burden more than more capacitated institutions like companies,” Sibanda said.
“It means compliance levels are low. Only about 300 companies are complying with tax payments religiously. For the rest it is hide and seek.”
In a series of reports submitted to the government in the past few weeks, industrialists confirmed that companies had been pushed to the brink by the economic crisis.
But Zimra said offering tax incentives to bleeding firms would be ill-timed given the headwinds that confront the economy.
“Caution had to be taken in granting tax incentives in the mid-term budget review process as the impact of the Covid-19 pandemic was not yet clear enough,” Zimra chairperson Josephine Matambo said.
“The need to maximise domestic revenue mobilisation in the given environment guided the level to which tax incentives could be granted when compared to what other nations could afford.
The (individual) revenue head recorded positive performance due to continuous salary adjustments and cost of living adjustments that employers offered to their employees to counter rising inflation,” she said.
The positive performance (for companies) during the quarter was mainly driven by the relaxation of lockdown conditions which resulted in more businesses resuming operations, restrictions of imports in line with Covid-19 measures which led to an increased demand for locally produced goods, as well as ongoing compliance enforcement projects which the authority is implementing.”
Matambo spoke as business pleaded for tax relief to improve the operating climate as corporate failures mounted.
The CZI said it was worried by tax levels.
“As we highlight, businesses indicated that tax morale as it relates to the quality of governance is the least understood but most fundamental dimension of tax compliance and is still weak in Zimbabwe,” the CZI said in a submission to government last week, spelling out its expectations for the 2021 budget.
“Government must tax to grow the tax base rather than tax to maximise revenue for short term revenue objectives. Regulate business for growth and competitiveness rather than for revenue to finance regulatory establishments and private sector led economic growth. Due to a depressed aggregate demand environment, businesses are asking the government not to introduce new taxes as well as reducing the export retention.
“The 2% Intermediary Money Transaction Tax reduces disposable incomes thereby reducing funds for investment. It is also considered as a penalty for doing business. Government is urged to create a user-friendly taxation framework for the SME sector to enhance collections without “killing” the big business and over burdening the formal sector which is compliant.
“Pay As You Earn tax bands need to be adjusted periodically to preserve purchasing power The effective tax rates have increased as taxpayers move to higher tax bands on account of inflationary salary increases,” the CZI added.