Learnmore Nyamudzanga RECENTLY the Zimbabwe Revenue Authority (Zimra) Acting Commissioner General (CG) Regina Chinamasa presented the revenue performance report for the first quarter ended March 31, 2022 (2022 Q1).
The taxing authority is appreciated for always reporting back to the taxpayers and other stakeholders. Consequently, it is our duty as taxpayers/citizens to cross-examine such reports and give our feedback to Zimra and other responsible authorities, such as, the Ministry of Finance and Economic Development (MoFED).
Generally, discussions on tax issues are not: familiar, comfortable and popular, but they are crucial and necessary because government spending heavily depends on taxes. In the 2022 national budget, expected total expenditure stood at ZW$927,3 billion (about US$5,5 billion) of which ZW$809 billion (US$4,8 billon) (87,2%), the largest share of revenue to cover it, expected to come from taxes. This shows how important tax is in our motherland.
It is important to note that a wide tax base supported by timely and accurate tax remittances from different taxpayer segments result in enhanced collections by Zimra for the benefit of the fiscus and the country at large.
Can we say Zimbabwe’s tax base is wide and is there a high compliance level? Well, this is a discussion for another day, let us have a look at the 2022 Q1 report.
So, despite social, political and economic challenges being faced in Zimbabwe, in addition to Covid-19 crisis and the Ukraine-Russia war, Zimra surpassed its 2022 first quarter net revenue collection target by 5,15%. It collected ZW$173,93 billion (US$1,04 billion) against ZWL’s target of ZW$165,41 billion (US$996 million).
In every ZW$100 collected by Zimra, individuals (Paye) contributed ZW$17,93; Value Added Tax (Vat) on local sales contributed ZW$16,34; companies (CIT) contributed ZW$15,33; excise duty contributed ZW$11,52; IMTT (aka 2% tax) contributed ZW$10,27; VAT on imports contributed ZW$9,90; custom duty contributed ZW$6,10 and the remaining tax heads including non-tax revenue contributed ZW$12,61.
Furthermore, all revenue heads grew positively in the first quarter of 2022 when compared to the same period last year except for companies, mining royalties and WHT on contracts that had a negative real growth and missed their targets.
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Overall net collections had positive real growth (inflation adjustment) of 18,35%. Some of the contributing revenue enhancement strategies in that quarter include taxpayer education workshops; stakeholder engagements; publicity of pertinent tax information; effective debt management; risk based audits and customs pre- and post-clearance enforcement.
Unfortunately, Covid-19 led to closure of the ports of entry to the public with the exception of trucks bringing in essential commodities, which negatively affected revenue collections from customs duty and excise duty.
Zimra has been surpassing targets since 2017, however, the tax to Gross Domestic Product (GDP) ratio fell by 130% from 28,1% in 2011 to 12,2% in 2019.
Is it normal for Zimra to surpass targets even if the economy is declining and the tax base is shrinking, for example in 2019 and 2020 where Zimbabwe had negative economic growth?
Is the Ministry of Finance and Economic Development setting easy targets? Is inflation helping Zimra? Are taxpayers overtaxed? Is our tax system killing the goose that lays eggs?
Coming back to the 2022 Q1 report, we should focus on real revenue growth because nominal growth which is not adjusted for inflation can mislead us.
Zimra management and staff are appreciated for surpassing targets, particularly, the 2022 Q1 target by 5,15% and improvement of net collections by 18,35%, However measuring performance of Zimra using targets only may be misleading. Inflationary pressures affecting pricing models of goods and services in the economy might have contributed to the growth in revenue.
As such, we need to look at the contribution of progressive and regressive taxes to these net collections. Grippingly, indirect taxes (Vat, IMTT, excise duty, custom duty etc.), which are regressive in nature contributed more than 60%, while direct/progressive taxes (companies and individuals) contributed approximately 33%.
Based on that can we say our tax system is progressive? Is it pro-poor? How are we performing in terms of tax to GDP ratio?
I understand there are exemptions and mechanisms to reduce the regressivity of indirect (regressive) taxes, but are they working? Are they still serving the purpose? Are they continuously revised since we are living in an inflationary environment?
In addition, how did the tax expenditures perform? Are they being evaluated? Why does the report separate VAT on local sales from VAT on imports?
Since we are using a dual currency system, how much was collected in US dollars? How did your automated systems (especially the troublesome e-services) perform this quarter as compared to last year?
Are you using the system or the system is using you? Because we seem to be going back to the manual system. Using the gender-disaggregated tax incidence analysis, what is the overall effect of the current tax system on women?
How is Zimra performing in terms of gender balance? Because in 2021 there was a gender imbalance in the executive-management. There were only four women out of 15 positions. These are some of the hard questions citizens should ask.
If I am to take you back, Zimbabwe received results from the Tax Administration Diagnostic Assessment Tool (TADAT) done by the International Monetary Fund (IMF) in 2018.
I understand that TADAT is a tool that is used to assess the performance of the tax administration (Zimra) system. What were the results of that assessment? Do citizens deserve to know, so that they can make follow ups, checking progress in some areas the authority might have been found wanting? Fast forward, in April 2019, during the Zimbabwe International Trade Fair (ZITF), Finance and Development minister Professor Mthuli Ncube signposted that: “Government has begun a process of simplifying its tax system while the Zimra continues to roll out operational reform strategies aimed at enhancing voluntary compliance and increasing domestic resource mobilisation (DRM)”.
Three years down the ladder, was the tax system simplified? Is it easy to register with Zimra?
Has there been an increase in voluntary compliance? Is it easy and cheap to be tax compliant in Zimbabwe? Has there been an increase in DRM?
One function of the Zimbabwean government is to provide the goods and services that individuals need and want but are not provided by the private sector.
Some of these services, include, police, courts, education, roads, economic security, among others. How is the government performing in this regard?
Undeniably the government largely relies on taxes to provide such services. However, a good government (MoFED) develops taxes and a tax system that serves the broad needs of society in an efficient, fair and impartial way. Can we say our tax system is efficient, fair and impartial?
Furthermore, a good government will always evaluate the impacts of taxes on society and the economy.
Are there such evaluations in Zimbabwe? Some of the widely accepted attributes that are used to evaluate taxes and a tax system in place include: economic efficiency, economic competitiveness, administrative simplicity, adequacy, and equity. How are we performing as Zimbabwe? Does our tax system promote economic efficiency and competitiveness?
In conclusion, having worked with several institutions, such as, the taxing authority, consulting companies, civil society organisations, research institutions and being a taxpayer myself, I have come to realise that taxpayers view the taxes differently based on the taxes they pay and the benefits they receive. Furthermore, stakeholders (Government, taxpayers, Zimra, CSOs, accounting firms and consultants) also view the taxes differently since they have different motives. Subsequently, choosing taxes and designing a tax system is a process of trade-off and compromise. In fact, it is a mammoth task.
- Nyamudzanga is an independent economist, researcher and tax consultant, who is a ZES member with Master’s in Tax Policy and Tax Administration and Degree in Economics. — [email protected] weekly New Perspectives articles published in the Zimbabwe Independent are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zimbabwe). — [email protected] or mobile: +263 772 382 852.
