THE overall tax burden in a country is largely determined by the role that citizens expect the state to play in the economy.
A number of countries in Europe are paying more taxes not because they are very rich but because they expect more public services from their government. For this reason, economists say no single “optimal” tax burden can be applied uniformly.
Tax-to-Gross Domestic Product ratios are not fully comparable across countries, because some governments might benefit from significant non-tax revenues, others from minerals, natural resources, or raise a greater proportion of their revenues through local taxes.
The question that needs to be answered is whether the current tax revenue level corresponds to the aspirations of Zimbabweans in terms of what they expect from government.
Is government able to deliver sufficient public services and improve infrastructure with the current level of tax revenues?
According to figures released by the Zimbabwe Revenue Authority (Zimra), the country narrowly missed third-quarter budget revenue targets as economic growth slowed and mineral royalties fell, underlining the tough task government faces to lift the economy.
Zimra said it collected US$897 million between July and September against a target of US$905 million. The tax collector said many companies were scaling down operations or had totally shut down.
According to the Confederation of Zimbabwe Industries’ latest survey, the country’s manufacturing sector lost steam in 2013 due to a number of constraints, registering 39,6 percent average capacity utilisation, in the period under review, 5,3 percent points down from 2012’s 44,9 percent.
“The economy continued to face challenges such as erratic power supplies, liquidity constraints, depressed industrial capacity, among other challenges,” Stanford Moyo, the Zimra chairman said.
The gap between tax revenues and public spending has been widening the past three years. Over the years, this gap has been filled by foreign aid and line of credit by foreign institutions.
However foreign aid should only be a temporary financing source to help the country in a transition towards economic revival while foreign borrowings have to be repaid by taxpayers sooner or later.
In Zimbabwe the general consensus is that despite increases in tax revenues over the year, investments in education, health, energy sector and infrastructure would be increasingly difficult to finance on a sustainable basis.Advertisement
Zimra said the marginal variance during the period under review was due to the harsh economic conditions prevailing in the country and the sluggish economic performance during the run-up to the harmonized elections.
“The economy continued to face challenges such as erratic power supplies, liquidity constraints, depressed industrial capacity utilization, among other challenges, within the period under review.
Value Added Tax (VAT) contributed the largest portion of the revenue, followed by individual Tax and Exide Duty respectively,” said Zimra.
The performance of VAT was however below expectation since net collection amounted to US$284,0 million against a target of US$291,1 million. This resulted in a negative variance of two percent.
“The question that needs to be asked is how tax is being spent. There is no sign that the government is spending taxpayers’ money wisely. Priorities are often misplaced and constantly changing. Some see no reason for paying tax because it is almost certain that it will be misused,” an economist said.
Tax evasion is widespread, even with indirect taxes such as the VAT, which should be easier to collect. While in principle the VAT should be collected on every cent spent for consumption purposes.
Are Zimbabweans paying too much, too little or the right amount of taxes today? Is the current level of taxes sufficient to finance the country’s needs in terms of public services and infrastructure?
Moyo said collections under individual tax amounted to US$211,3 million against a target of US$171,2 million, resulting in a positive variance of 23 percent.
This revenue head has been performing well since the beginning of the year due to a combination of factors, dominant of which were salary adjustments and performance awards that were granted to employees.
“Furthermore, audit and follow-up initiatives by the authority resulted in improved compliance from clients, thereby boosting revenue collections. Although the target has been met, companies have been scaling down in operations (in order to reduce operating costs) through either retrenchments or closures,” said Moyo.
Third collection from mining royalties stood at US$39 million against a target of US$63,7 million, resulting in a negative variance of 39 percent.
“Minining royalties were negatively affected by fluctuations in international prices of minerals. In addition, royalties from diamonds were negatively affected by the placing of some diamond mining companies under sanctions.
“Therefore, the recent decision by the European Union to lift sanctions that had been imposed on ZMDC will go a long way in aiding the performance of this revenue head,” said Moyo.
In the quarter under review, company tax contributed $102,4 million against a target of $105,2 million due depressed industrial performance as capacity utilization declined this year.
This negatively impacted on the performance of companies, and the performance of the revenue head as firms could not access lines of credit to recapitalize and replace obsolete equipment.
Collections from customs duty came in at US$91,8 million compared to the budgeted US$94,1 million weighed down by capital equipment and raw material that attract low or no duty.