LAST Thursday, Finance minister Mthuli Ncube became the first guest to be interviewed by Alpha Media Holdings (AMH) chairman Trevor Ncube on the forum: In Conversation With Trevor. The former African Development Bank vice-president, who has been on the hot seat for over 10 months, spoke about various issues, which include the abolishment of the use of multi-currencies in local transactions and the gradual removal of government subsidies.
However, it was when he spoke at length about the introduction of the not-so-popular 2% intermediated money transfer tax (IMTT) that my attention was caught.
The Treasury chief, who is presiding over empty government coffers, said: “… So, how do I get the informal sector onboard to pay their dues, and I thought the best is to use some tax based on the usage of electronic money. I get 100% compliance, everyone pays, and you only don’t pay if we say don’t pay. Some people have been saying, minister, given that this works so well, why don’t you reduce other taxes and increase this one (IMTT). I have been thinking about it.”
And after being asked if there is going to be some tax relief in his mid-term fiscal policy statement, the former dean and professor of finance at Wits Business School in South Africa responded: “You know what, it is very attractive and in my next budget, I am even mulling over that.”
With the country’s unemployment rate hovering above 90%, to a broke government like Zimbabwe, taxing the informal sector sounds like a good idea. However, despite the move being attractive, authorities should proceed with caution.
An overwhelming majority of informal traders, vendors and small business operators, who usually carry their enterprises in backyard offices, are poor people with no assets, savings or social safety nets to fall back on. These are the same people who usually use mobile money, especially EcoCash, Telecash and OneWallet to make transactions. A look at the incomes of these people proves beyond reasonable doubt that they are either overtaxed or are too poor to be taxed as such.
There is need for the government to be holistic and practical and never lose sight of the fact that some of these informal traders are currently paying tax, one way or another. They are saddled with value-added tax, import duty, council levies and a plethora of other indirect taxes.
So, Ncube should not throw caution to the wind and increase IMTT tax that would be anti-poor. There is need to cushion the poor. Overburdening small businesses and vendors would be a case of killing the goose that lays the golden eggs. It is my view that an increase in such taxation would be a burden, because the government would be spending today, money that would otherwise be invested by business tomorrow. Without such investment, development would be held back.
It seems utterly inconsiderate for the government to burden impoverished small-to-medium enterprises and the poor with a raft of new taxes. To cap this hypocrisy, while the taxman is eyeing to increase IMTT tax, which is usually used by small business operators and the poor who include vendors and pensioners, for unreasonable taxation, the political elite and the well-connected are either evading or avoiding fulfilling their tax obligations.
Instead of bullying a poor widow in Mupedzanhamo flea market in Mbare, who is struggling to eke out a living by selling second hand clothes, it boggles the mind why Ncube is conveniently turning a blind eye to wheeler-dealers building grotesque mansions in the low density suburbs, without probing the source of such funds. They are not paying taxes, no wonder they are living large. These are the same well-to-do people who have not been paying their Zesa bills to the extent that the power utility is now failing to provide power, plunging the whole country into darkness. It is the same poor who always bear the brunt of such negligence on the part of government. The rich will always be in a better position while hiding from the tax collector than the poor. However good its intentions, a revenue-starved government is one with its hands tied firmly behind its back, able only to gaze into the whirlpool of poverty in which most of its country’s people flounder.
However, there are no easy solutions to Zimbabwe’s multi-faceted crisis. Ruling elites and those politically connected usually get off lightly when it comes to paying taxes.
The government should consider imposing income tax on rentals, just like is the case with the United Kingdom. If one lets property, they need to pay income tax on their receipts; this applies to both residents and non-residents alike.
If one is a non-UK resident, individual or company renting in the UK, one is subjected to UK income tax on the profits of their property rental business. The loan interest deduction rules for buy-to-let investors are changing — the effect will be that in some cases, owners will pay tax on ‘income for tax purposes’ that is greater than their real income.
At the turn of the millennium, Zimbabwe has experienced an influx of foreigners from China, India, Nigeria, Somalia, and Ethiopia, among others, who have been buying properties locally.
The government should take advantage of that and tax accordingly. For example, non-resident foreigners are taxed on their German-sourced income. Married couples are assessed and taxed separately. Income earned by non-resident foreigners is taxed at progressive rates.
Or alternatively, the government should come up with measures to introduce “housing” tax, where each landlord should pay an agreeable fee, based on how many rooms the property has and as well as on location such was the case during the Ian Smith regime. This is based on the principle that those who have the capacity should pay more. Such fees should be reduced for those who have lower incomes, or alternatively, less money to spare after their personal expenses, regardless of income. This worked before and if there is political will, these interventions can also work wonders for Zimbabwe today.
Rwanda, a country that the New Dispensation is drawing lessons from, last year adopted a new system in which people who own extra residential houses are required to pay a property tax for each extra housing unit as part of new efforts to broaden sources for district revenues.
The law exempts only homeowners with one house that they live in, but anyone else with an extra house that they do not stay in will be required to pay a property tax amounting to 1% of the house’s value every year. The tax will be paid by all owners of more than one residential home in the country, regardless of the value of the house
Before adopting what appears to be a rashly expedient decision to increase IMTT taxes, the government is duty-bound, in terms of the dictates of good governance and administrative law, to consult widely before imposing extortionist taxes, thereby killing the goose that lays the golden eggs. The Honourable minister should be reminded that a good tax system includes a broad tax base and low tax rate; and the reverse is true.
Let us lower our tax band and broaden our tax collection streams. That way, Zimbabwe could, undoubtedly, be an upper middle class economy by 2030.
Spare a thought for the poor, Mr Minister!
Cliff Chiduku is a journalist based in Harare. He writes in his personal capacity