ZIMBABWE’S tax agency plans to engage companies to increase tax compliance in the country.
By Business Reporter
Without any direct external budgetary support, the southern African nation solely relies on taxes to fund its operations.
But because of the rapidly deteriorating economic situation characterised by company closures and downsizing, most businesses in the country are finding it difficult to honour their tax obligations.
Zimbabwe Revenue Authority (Zimra) manager for technical services, Mathias Chinanayi told a recent tax seminar that government was pushing to reduce the tax debt now above ZWL $4 billion.
“Our focus is . . . more on education to increase compliance. We want to create a positive culture towards tax issues. We will soon embark on the cooperative compliance programme whereby we go to corporates, we sit down with them and understand what they do in their framework,” he said.
“Levels of voluntary compliance are very low. We have a huge amount of tax debt, government, councils and business are finding it hard to service this debt. We look forward to have stability so that at the end of the day social services are given to the people of Zimbabwe,” Chinanayi said.
Speaking at the same meeting BDO Tax Director, Maxwell Ngorima said the current regulations for taxing Pay As You Earn needed fine-tuning.
He said the current legislation does not clearly define how best the payment of payee for those earning should be executed.
“We have workers who are paid in foreign currency, how do you calculate the pay as earn? From the discussions we have had, there are two methods which are being used by Zimra which say the forex amount is calculated using the interbank rate. So a lot of people are (currently) using two methods. (They) use the same tables for US dollars and the same tables for Real Time Gross Settlement dollars. People are saying, yes we want to pay the payee, but using which method,” Ngorima said.
He said the method of using the interbank rate to calculate payee results in increased deductions in line with adjustments of the rate.
“The problem with that one is, let’s say you have a US$100 salary per month your pay as earn is going to increase on a daily basis because the interbank rate is increasing everyday. So you create what is called a fiscal drag. You are pushed on the higher tax bracket not because your salary has increased, but simply because the interbank rate is increasing, so that has caused quite a lot of confusion in the market. The system does not appear to be backed by law,” said Ngorima.
“Another issue is of capital gains tax. I have an example that if you sold a property for US$20 000 last year and if you get the same property again for US$20 000 this year, they say you have made a gain. The US$20 000 for this year is converted at interbank rate so that ups the selling price. So you are being charged on a notional gain.”