Eddie Cross: If I were King
By Eddie Cross
It is highly unlikely that I will be anything other than a simple citizen of Zimbabwe. But sometimes I wonder what it would be like to be King for a period of time. What would be my personal priorities and what would I do to implement those priorities. This is a walk through fantasy land, but it might have some relevance to you.
Every ruler has to have a means of raising money to finance the State. Our system has been built up over many years and is based on both direct and indirect taxes as well as the numerous levies that we pay on just about everything to finance little corners of the Kingdom.
We collect about 25 per cent of our formal sector GDP, compare that to the English tax of 5 per cent on tea that sparked a revolution in the USA.
Most African States collect about 16 per cent, South Africa is about the same as Zimbabwe but the OECD States average 35 per cent. Our problem lies partly in the fact that the formal economy only represents perhaps half our real economy and the number of actual tax payers is only a tiny proportion of our population. The tax burden is not evenly spread.
The other problem is that our taxes are basically coercive – we try to present the Tax department as a ‘client friendly’ institution, South Africa spends millions advertising the fact, but this does not change the reality that all tax systems, everywhere and all the time, have been adversarial in nature. Tax collectors in the Bible are generally used as an example of sinners who exploit people to meet their targets for revenue.
Taxes can also mean that the poor are basically used to create wealth for a tiny minority elite who live in luxury and enjoy near total authoritarian power over their ‘serfs’. The Feudal Castles of Europe and the Palaces of Russia and England are prime examples of a time when Feudal Lords and Kings ruled the World in their interests. Robin Hood their perennial enemy and friend of the exploited.
I live in Zimbabwe and in the 21st Century and function in an economy where technology is rapidly changing everything around us. We no longer use money, go to the Bank or talk to each other over thin copper wires. Yet, Taxes do not change, why is that? Is it that we simply do not know how to manage ourselves in this new world order? Or are we fearful that if we changed things the money might not continue to come in. It’s probably a bit of all of that.
We should also appreciate that tax is a business, for those in the Tax Department it is their livelihood for others it’s how to advise people on minimizing their tax obligations, for still others, it’s how to get the figures together and fill in the forms and submit the stuff for assessment.
Even though our economy is small, the velocity of money, how many times it turns over and in the tens of millions of daily transactions, is to me the most significant development of the new economy we all subsist in and depend on. If I were King therefore I would take a long hard look at this new element and see what we could do to make it work for everyone.
I would impose a substantial tax (5 per cent) on all electronic transactions without exception. Presently we handle about 10 billion dollars of local transactions in local currency every working day. 5 cents in every dollar would theoretically raise Z$500 million dollars every day.
That would be Z$3 billion a week and Z$156 billion a year. No tax audits, no tax submissions and no delays in collection and no leakages and noncompliance. The money would be transferred to the Treasury every day after close of business. It is the most effective and lowest cost form of taxation ever conceived.
I would then do two other things – abolish Company Tax and only charge PAYE on those earning very high salaries and incomes as a form of wealth tax. Why Company Tax?
Because this is a constant source of friction with the private sector, it absorbs a great deal of management time and demands constant pressure from the Tax Department. Leave the profits in the Companies to invest in production. Such a measure would also stimulate investment, both local and from outside the country.
Why reduce PAYE? Because it is a job to collect from thousands of employees and I think asking a worker who is earning well below what it actually costs to live, to pay PAYE is morally indefensible. It would increase disposable incomes and increase consumption and economic activity. It would help low and middle income families support school and medical costs. It would also encourage formalization.
The tax on transactions would be universal, or as universal as possible. The informal sector would be taxed on the same basis as the formal sector and we could support such a process by making the electronic transaction process cheap and efficient. This would require competition with Ecocash and for that I think I would sell off Net One to the highest bidder. At present the lack of any real competition in this field is a growing problem that can only be remedied by increased competition. On top of that I think we could get a very substantial payment for Net One.
The second area where I would take action, if I was King, would be to simplify and standardize all border taxes. Basically raw materials and inputs for productive purposes (spare Parts) would be free or at a very low level of duty mainly to capture the trade numbers.
All finished goods would be taxed at a standard rate of (say) 25 per cent. Specific duties on vehicles would be an exception to basically tax expensive luxury vehicles and to keep vehicles such as pickups as cheap as possible. The principle purpose of border taxes would be to secure revenue for the State and to foster domestic production. I would automate all border posts and make tax collection a mechanical process with the minimum of human involvement.
I would retain VAT and Excise Taxes and try to ensure that the collection of these were self-administered and collected automatically.
Finally, I would abolish all levies, unrelated to Membership driven organisations and make the institutions involved part of the budget process with the same supervision and controls. All fines levied by any State controlled organisation, speeding fines, environmental impact fines and judicial fines would be directed into the State coffers without deduction.
In the recent past it has been clear that the power of the Police to levy and collect fines has been a major source of corruption to the point where it was almost a parallel tax system. The same would apply the Environmental Protection Agency.
Taxes are never easy to pay or collect, but they are essential and what we need to recognise, is that Government has the responsibility to see that every dollar counts and is well spent and accounted for. The cost of State controlled and administered corruption in Africa has made all of us poorer than we should be and it is time for zero tolerance. In China they treat corruption in the public sector as a very serious crime, often punishable by execution.
Perhaps it is time we looked at following their example.
Eddie Cross is a former opposition MDC MP for Bulawayo South and a respected economist. You can follow his blog African Herd