By Phillimon Mhlanga
HORDES of struggling vendors across the country could soon start paying taxes as the cash-strapped administration of President Robert Mugabe widens the tax net in a desperate bid to rake in more revenue required to fund government’s tottering operations.
The pursuit of vendors who have mushroomed everywhere in the country is reflective of the state of an ailing economy which has now become highly informalised.
As the revenue base continues to dwindle — eroded by a shrinking economy, itself affected by company closures and increasing job losses — the Zimbabwe Revenue Authority (ZIMRA) is having severe headaches in meeting its revenue targets.
Feeling the heat brought to bear by under-fire Finance Minister Patrick Chinamasa, the tax collection agency has started talks with the Ministry of Local Government and National Housing to find ways of organising vendors into designated areas so that they could start contributing to the fiscus, which has been overwhelmed by competing demands for cash.
ZIMRA’s director for finance, corporate planning and modernisation, Robert Mangwiro, confirmed there were talks to start taxing vendors.
He said: “At the moment, we are liaising with the Ministry of Local Government and National Housing to organise them (vendors) so that they directly or indirectly contribute to the fiscus.”
Opinion is sharply divided over the efficacy of the move.
While there are voices which feel that it is every citizen’s responsibility to contribute to the fiscus, another school of thought argues that government was merely dealing with the symptoms of the problem.
Economist John Robertson said trying to tax the vendors would be like stealing bread from the poor.
“It won’t restore government’s tax revenues, but it will cause anger. Government should be conscious of the fact that the majority now is not the workers, but the people who would like to be workers, but can’t find a job. And they know who to blame,” he said.
Robertson said government should fully accept, and even take responsibility for the fact that the informal sector is a symptom of a much deeper problem, which was caused by the same authorities.
This is the sharp decline of the jobs that all these informal traders would rather have in the formal sector. It is government policies that have destroyed these jobs,” said Robertson.
“Government has now caused formal employment in Zimbabwe to fall to the level recorded in 1970, when the country’s total population was only 5,3 million. Today the population is approaching 14 million, and it should have been 18 million if the disastrous policies had not forced so many to become economic refugees.”
He said government cannot fix the problem by treating the symptoms; it has to generate conditions that encourage formal businesses to grow and multiply.
“Of course, that takes money, and Zimbabwe hardly has any, so we need the money that foreign investors could bring to the country. But the message that foreign investors are hearing from our authorities make it very plain that Zimbabwe offers one of the most hostile investment environments on earth,” said Robertson.
It is estimated that between US$3 billion and US$7 billion is circulating in the growing informal sector, which has been described by government as the “the new economy”.
Vendors are struggling to earn a living with unemployment in the country soaring above 85 percent.
By taxing them, government could indeed be worsening their plight.
For some time now, government has been eager to find a safe way to tax the informal sector, which is now significantly bigger than the formal sector.
In an effort to capture a proportion of the income of hairdressers and a few others whose activities could not easily be hidden from view, government brought in presumptive taxes a few years ago.
But they were mostly hidden anyway, and the amounts collected answered none of the government’s problems.
Robertson said if small business operators could identify any advantage from forming a proper company, many of them might have sought registration and would have been prepared to become formal taxpayers, but government allowed the few advantages to fall away years ago when sales tax numbers could no longer be used to gain at least some exemptions from sales tax when establishing a business.
Then sales tax was displaced by Value Added Tax (VAT) and the administrative difficulties involved in reporting the value additions and reclaiming VAT already paid for inputs became far too difficult and costly for almost every small business.
As becoming a taxpayer offered no advantages, but too many problems, the informal sector became the best option. Then that choice became a mission — to stay clear of the tax net.
Robertson said if attempts are now made to throw the net over them too, vendors will cease operating and easily pretend that they don’t even exist.
If attempts are made to force them to buy vendors’ licences, they will return to the same behaviour they adopted when they were regularly hounded by municipal police.
“Their business activities will continue, but under greater duress. As most are already struggling to survive, this will generate much greater resentment, specially as even a modest tax could deprive many of their total profit. If ZIMRA insists on licences that have to be paid for, within a few days fake licences will become available. Hey will be at a significant saving and the money collected for them will never reach the fiscus.
“In effect, ZIMRA will be responsible for generating a brand new informal business opportunity — the sale of counterfeit licences that will keep the informal sector in business. If ZIMRA believes that the widespread corruption throughout the country will not derail their plans, they need to wake up to a few realities,” he added.
Brians Muchemwa, an economist, said it is every citizen’s responsibility to pay taxes and the move will restore equity and order in the economy.
He, however, admitted that it is not going to be easy because most of the vendors have no registered addresses.
“The problem is that the vendors are too many because there are no formal jobs. Big corporates are no more and these vendors have taken up the void left by big companies. In fact, in this economy, there is a growing and worrying denial by various stakeholders with regards to taxation and prudent public expenditure,” said Muchemwa.
“On one hand, the private sector and indeed the informal sector as well, are not showing willingness to pay taxes and subsequently blames ZIMRA for its heavy handedness when in fact ZIMRA is just executing its statutory responsibility.
“On the other hand, the government is failing to admit and understand that the economy has no capacity to meet the current expenditure level. Government should not continue exerting pressure on ZIMRA to collect when it’s clear that it (government) has to rein in its expenditure first.”
ZIMRA missed its collection target in the first quarter of this year by six percent, and the trend is expected to continue.
The authority reported net collections of US$803,2 million against a target of US$850 million. Gross collections were, however, five percent above target at US$896,6 million.
Company tax contribution was down to US$71,5 million from US$104,73 million and against a target of US$81 million.
There was a 32 percent decrease in revenue collections from companies with the majority feeling the strain of the harsh economic environment.
The low revenue collections are a reflection of declining economic activity in the country.
ZIMRA attributed the poor performance of revenue to the harsh economic environment which has negatively impacted on companies’ profitability and viability.
This has forced the authority to take drastic measures in its quest to sustain government operations including raiding bank accounts belonging to companies in tax arrears and current plans to tax vendors.
To boost its revenue collections, ZIMRA has also extended the tax amnesty window for companies to the end of June this year, hoping that more businesses would declare their tax liabilities.
Government had originally set March 31 as the deadline for delinquent taxpayers to come forward and declare their obligations.
ZIMRA introduced the tax amnesty late last year, hoping to collect millions of dollars from tax evaders through voluntary submission on account of forgiveness for a tax delinquency.
But there was poor response to the amnesty, and analysts said this could have been due to insecurity.
The tax amnesty allows delinquent tax payers to settle their tax debts without having to pay penalties or interest on account that they voluntarily inform the tax collector of their obligations.
Many companies have closed due to several challenges, including liquidity constraints, antiquated equipment and insufficient credit lines.
The majority of those still in operation are either on the verge of collapse or have closed completely, rendering thousands of workers jobless and adversely affecting revenue collection.
Apart from company closures that have claimed thousands of jobs, the country’s frail economy has suffered knocks from retrenchments.
Furthermore, it remains difficult for the remaining few companies that are still operating to comply with tax demands.
Consequently, the situation is now dire as government is no longer able to guarantee consistent public service salary dates.
Government is currently struggling to pay monthly salaries for its strong 553 000 workforce.
Salary costs currently account for about 90 percent of government expenditure, meaning that a paltry amount remains for crucial infrastructure development projects and public services delivery.
Government has also failed to mobilise bonus payments in time for the annual break last year. Most civil servants were paid bonuses early this year, only after threatening to go on strike.
Last month, President Mugabe embarrassed Chinamasa, who had suspended civil servants’ bonuses for 2015 and 2016.
He claimed he was not consulted on the issue. Financial Gazette
