Taxation is one of the fundamental policies at the hands of every government in the world.
By VICTOR BHOROMA
It can stimulate economic growth through giving profit incentives to business or slow down economic growth (unintentionally, in most cases).
Taxation has been a thorny issue for nearly 20 years in Zimbabwe due to market upheavals witnessed by businesses in the economy.
In recent budgets, the government has sought to increase taxes on virtually every consumable and popular product in Zimbabwe, so as to cover for the declining tax base.
By increasing taxes, the government has scored on the short-term goal of increasing revenue and covering its ever growing expenditure bill.
The surpassing of revenue collection targets by over 17% in 2017 points to the overwhelming achievement on the tax collector’s mandate.
However, the unintended long-term effects of hiking taxes or proposing more tax avenues have often been missed in the process.
These effects inevitably come back to haunt the master slowly, as tax defaulting and evasion, company closures, product dumping, low capacity utilisation, uncompetitive pricing and smuggling become the order of the day.
Zimbabwe’s tax regime is considered as one of the most difficult and expensive in the world, with the country ranked 159 out of 190 in the World Bank’s Doing Business report of 2017.
The report looks at the ease and cost of paying taxes for businesses in all the ranked countries.
The report concludes that Zimbabwe’s taxes are a burden to companies and investors, and require reforms to ensure competitiveness in the economy.
The recent revelations by the Zimbabwe Revenue Authority (Zimra) that the taxpayer is owed over $4 billion by defaulters (dating back to 2009) confirms the magnitude of the burden on businesses and tax payers in general.
In some instances, businesses pay taxes or levies that outweigh the total cost of direct inputs used in producing a single unit.
In 2017, Zimra collected $3,7 billion in taxes (nearly 30% of the country’s gross domestic product) and the figure is set to go up to $4,3 billion since most transactions have gone electronic, thereby, allowing transparency in tax remittances.
The main laws for revenue collection in Zimbabwe include the Income Tax Act, Capital Gains Act, The Finance Act, The Estate Duties Act and the Customs and Excise Act.
The Income Tax Act covers incomes for individuals, companies, trusts and withholding taxes.
The other tax acts cover specific issues for example the value-added tax covers VAT issues.
VAT has become the major contributor to the fiscus since 2004 and contributed $1,075 billion in 2017 to the revenue collections.
VAT is levied on local sales and on all imports to the country.
The pertinent question, however, is: Is the government not over-milking its cow? Will the cow grow or reproduce under such circumstances?
The impetus for economic growth is real in Zimbabwe and the capacity is huge.
Businesses require more incentives and one of them are tax breaks.
The government has granted minor tax breaks to selected industries, slightly reduced levies on petroleum products and dangled its carrot to prospective investors in export processing zones, but the tax breaks are not enough to warrant major shifts in prices, investment or economic boom.
Structured tax holidays on VAT for the following sectors will go a long way in inducing the much needed economic growth.
PPPs in infrastructure development
Public-private partnerships (PPPs) are the best and cost-effective answer to Zimbabwe’s deficit on infrastructure development.
The perfect example in this case is the Infralink Plumtree-Mutare highway resurfacing, which was completed within time and is undoubtedly the best highway in Zimbabwe.
Tax holidays to businesses engaged in similar projects such as electricity generation, water works, housing, telecoms and health will lure more investment, create jobs and unlock economic growth in the country.
New and emerging exporters
Zimbabwe’s exports in 2017 grew to $3,8 billion as a result of export incentives initiated by the Reserve Bank to shore up its nostro accounts.
The conclusion is that further tax holidays to all exporters and emerging businesses in cotton, furniture, mineral ores, leather and steel exporting will create the much-needed growth through value chain development.
The manufacturing sector contributes 11% to Zimbabwe’s GDP and 20% of our exports.
In terms of employment, the manufacturing sector is the best and most diverse.
Strategic manufactures in agriculture processing, steel processing, minerals processing, tobacco processing and engineering should be granted systematic tax holidays to allow for foreign investment, capacity development and machinery imports.
This sector bears the worst scars of economic decline in areas such as Ruwa, Belmont in Bulawayo, Kadoma, Mutare, Willowvale and Southerton in Harare.
Zimbabwe is one of the top African destinations with four United Nations Educational, Scientific and Cultural Organisation world heritage sites attracting over 2,1 million visitors per year.
Tax holidays on resort fees to industry players will ensure Zimbabwean destinations are priced more favourable as compared to South Africa and Zambia in the region.
Visitors and spending at these destinations will also multiply.
Victor Bhoroma is business analyst with expertise in strategic marketing and business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe. For feedback, mail him on email@example.com or Skype: victor.bhoroma1.