Tax assault is a failure to comprehend what makes a country a success story

The country cake is very small and plugging the hole of deficit is ill thought if the bedrock of it is incremental taxes.

THE recent budget proposal is a complete failure to understand what Zimbabwe needs to be a success story.

The budget proposal by Finance minister Mthuli Ncube which he says has the blessings of his principal, President Emmerson Mnangagwa, has left a lot of Zimbabweans livid. It also makes very sad reading. A lot of people now have a conviction that their government has an obnoxious penchant for inordinately craving for other people’s money and they believe it wants to compulsorily expropriate their money to the very last cent through a grievous tax assault.

Money is private property and as such it must not be compulsorily expropriated without reasons that are fair, and equitable and must be collected using a plausible scientific basis. Money doesn’t originate from faceless entities but from the sweat, labour, and innovation of productive individuals so it must be an asset worth lots of respect.

The good professor is designing and implementing economic strategy in a manner that Douglas Alexander described as a “fundamental error of what makes success in the 21st century”. The Treasury's challenge is that of innovating around the familiar of concentrating on the cost and expenditure side of the budget. The real focus should be revenue growth policies and funding.

The country cake is very small and plugging the hole of deficit is ill thought if the bedrock of it is incremental taxes.

A budget that doesn’t address the youth and employment is a shot in the dark. It makes sad reading as tax in the format as presented creates nothing but poverty.

Zimbabwe no longer has major cost challenges. Our budgets must now focus more on revenue growth than sharing a small cake. In that revenue aspect, the government Treasury chief is failing and dismally doing so. The Abuja, Maputo and Dakar declaration on health, agriculture and education are meaningless without ideas to create money to fund the welfare state, appease the youth, and grow the economy.

The challenges we continue having as a country of additional taxis are all because we are lacking ideas to grow our economy beyond agriculture and mining. 

We are also failing to have ease of doing business, a friendly tax code, creation of innovation funnels, innovation outside familiar, support to the youth, broadened investment outside mining, ideation to value add, and creation of new industries outside the inherited Rhodesian industrial complex.

If mining was to contribute to the fiscus than the paltry 4%, the focus must be on resource ownership, production, formalization, and a decent tax regime for the natural resource sector. 

Presently mining contributes skewedly to individuals, not country. The individuals who mine do not bank, are informal and not tax registered, their employees do not have pay as you-earn, the miners don’t pay corporate tax, buy international brands, invest outside Zimbabwe, their children attend foreign universities, and in time of windfalls they holiday even every month—no contribution to the fiscus and no reinvestment in other upstream or downstream sectors.

Agriculture just like its bossom buddy, mining is a grand looting of the fiscus with little or no contribution to it in return. The two buddies remain the focus of our government yet it is evident they are a drain rather than a positive to our economy.

Government focus must be broader.

The next challenge the budget has is that it is just craving people’s money without a scientific basis and will use the below examples to illustrate this idea in brief.

VAT registration and tax clearance for small traders

First, this is just crony capitalism to prop up ailing retail giants who have failed to implement ideas in the country's innovation funnel. We must doubt that such a measure will spur aggregate demand and result in more tax collection.

The reality is that manufacturers collect thirty percent of withholding tax from traders without tax clearances at the moment which is far more than the fourteen and half percent of Value Added Tax. It can be deciphered the idea is not about more tax or formalization.

VAT is a zero-sum game. What you collect (output VAT) from traders you remit to the consolidated revenue fund through Zimra and what you are levied (Input VAT) when you buy as a manufacturer is reimbursed. Registered traders don’t pay VAT.

Small-scale traders not registered for VAT are charged VAT by the manufacturers can not claim which means more revenue collection than when they become registered. Refusing them to trade is not about tax because unregistered traders pay more for their inability to get VAT refunds.

Most fast-moving consumer goods are either zero-rated or exempt. There is not so much incident of VAT to be remitted. It does not save much purpose to have this twenty-five-thousand-dollar threshold except saving their cronies in established supermarkets. 

It's unfortunate that prices in the so-called formal supermarkets are higher and a cause for pain to the masses who opted for the “tuck-shops” that have reasonable prices. People are being made to suffer as the government crucifies them to protect ailing dinosaur supermarkets probably run by their cronies.

“Mansion” tax

Mthuli’s idea of recognizing that it's often necessary to use violence and force like philosopher Hagel said to make people law abiding until they are advanced enough to accept the rationality of a life that has order is well thought but it is void of a scientific approach in many ways.

Zimbabwe's economy is over seventy percent informally or SME-driven. Tax authorities get zilch from most of its citizens because they are not registered anywhere hence income is in households rather than offices, factories and other formal places. Correct view but it’s the science that got in the minister’s head that is baffling.

Having a house is not present income which must ideally be the basis of income tax or its sibling presumptive tax. It is the process of building a house that can evidence income. There is no correlation between the house's value with income and expenditure. As an example, residents of Fern Valley in Mutare are mostly pensioners with houses above the tax threshold and have less income than many youngsters in Dangamvura with houses below the threshold. This is an attempt to tax history or apply tax law in retrospect

The laughable intention is to ringfence the funds for urban infrastructure. Zinara remits pennies to city councils, NSSA pays pittances, and the government-controlled medical aid society has failed its medical services companies. There is no evidence that the government is better at the infrastructure development of cities without it being disruptive of the council's financial ecosystem.

Sugar tax

A great idea but excluding other products with harmful effects smells of lobbyist and crony capitalism.

This tax should cover a lot of products including but not limited to fast foods, alcohol, processed meat, refined carbohydrates, and canned foods. And the lifestyle disease in the minister’s view is just cancer and that’s not true.

The US$0.02 per gram tax means a significant loss of consumption as one can of these sugar drinks has an approximate tax of US$0.42 and that’s very extreme taxation.

The idea that the money is ringfenced is never feasible. 

Toll fees

This is crony capitalism on steroids.

The minister announced he had concluded or was concluding build operate and transfer contracts for the construction of many major roads. In this budget, he has made sure those who got these opaque contracts have shorter payback periods, higher net present value, and fat profits.

Unfortunately, the general people will bear the impact including higher access to market costs, increases in food prices, failure of farmers and rural communities to access cities, transport challenges for both people and goods, and destruction of family networks. Unusual for a government voted by a majority of rural people.

This assault and insult of taxing has reached the diseconomies of tax according if we use the Laffer curve. There will be consequences of driving the economy underground, housing developments and trade will be a lot more complex due to tax compliance gates, people will get into debt to pay tax, locals will invest in tax havens, smuggling will be more rife, diaspora will not invest and suffering shall continue. And that is not a great way of making a country a success story.

 Brian Sedze is a strategy, innovation, and tax consultant. He is also the president of the Free Enterprise Initiative. He may be contacted on [email protected] and [email protected]

Related Topics