Financial Gazette (Harare)
Shame Makoshori
6 December 2007
analysis
Harare — WHEN the late sungura music legend, Leonard Dembo protested bitterly against government's penchant for a punitive tax regime in the hit song Zindakupa, Zindakutorera (the giver, the taker), it was widely expected the leadership would understand he spoke for the majority of the country's restive population.
In the song, Dembo chronicles how government was giving with one hand and immediately taking away with the other, leaving the worker with nothing, and forcing him to grapple with increasing poverty.
Back then in the mid-1990s, the local currency was relatively stable and the impact of the country's high taxes, the second highest in the world after Israel, was not felt.
But the preceding years following the failed Economic Structural Adjustment Programme meant that the high tax regime condemned many people into abject poverty.
So when Finance Minister Samuel Mumbengegwi dubbed the $7.8 quadrillion 2008 national budget one of the biggest in figure terms on the continent, "The People's Budget", many hoped that at last, more money would be put into workers' pockets and less into the treasury.
But as Dembo would call it, Mumbengegwi was just trying to be artistic, giving 100 percent with one hand and taking away 70 percent with the other.
And he did not mince his words, bluntly telling the long-suffering taxpayers that his job was to protect the state's depleted purse.
In the process, he announced an array of measures that would not directly strip individuals of hard-earned income, but would eventually take a much larger chunk of their money than if they had been penalised directly.
"I propose to protect the tax revenue base, critical for financing government programmes and projects, by reviewing tax levels in line with expected economic performance," Mumbengegwi said.
"It will be necessary that we bring into the tax net all potential taxpayers who are currently in the informal sector and are not paying tax. I propose to provide tax relief to taxpayers through increasing tax-free thresholds and bands in order to increase disposable incomes of individuals," he told parliament.
However, the tax-free threshold of $30 million per month, and the widened tax bands to end at $500 million per month, above which income is taxed at 47.5 percent, remain inadequate.
Inflation is racing at a much faster pace than incomes, and currently stands at over 14 000 percent year-on-year for October, although the figures have not been officially released by the Central Statistical Office (CSO).
Experts say in the next 24 days, the buying power of the $30 million would have been eroded significantly, to the extent that the amount would eventually be worth just over $1 million.
The parallel market is raging, with the domestic currency said to be losing value at a rate of about $500 000 against the greenback per day.
The parallel market rates have been key to commodity prices, as manufacturers are sourcing foreign currency for critical inputs on the parallel market.
That, coupled with commodity shortages, has resulted in a significant erosion of incomes as basic commodity prices have risen faster than incomes.
Apart from adding pork onto the zero-rated list of goods for Value Added Tax (VAT) purposes, there were no incentives for the producers.
Government is already collecting the bulk of its revenue from Pay as You Earn (PAYE), with collections to October 2007 totalling $8.2 trillion, translating to 25 percent of total revenue collected, and only second from VAT.
Zimbabwe Congress of Trade Unions secretary general Wellington Chibebe says this is too high.
"The highest paid worker is taxed at 47 percent," Chibebe says.
"Add this to the three percent that goes to the National Social Security Authority, 17 percent for the Value Added Tax, and another three percent for the AIDS levy, the result is 70 percent of the earnings are not for the worker. But business, which has the money, is only taxed 30 percent corporate tax. That is a capitalist approach to taxation," he says.
The tax-free threshold, Chibebe says, should track the value of the family basket in order to save families from the hemorrhage.
"Workers are walking (to work and back home) everyday because they are paid poverty wages," he says.
Corporate tax collections, which under normal circumstances form the backbone of government revenue, totalled $5.3 trillion, accounting for 16 percent of the total revenue.
Mumbengegwi knew that his computations were not right.
For despite overly ambitious projections to bring down inflation, he anticipated massive job cuts.
That is why he offered retrenched workers the $1 billion non-taxable retrenchment package.
There were two probable reasons for this.
The first could have been that he is desperate not to annoy the electorate ahead of crucial polls in March.
But he said the idea was to leave the retrenched workers with capital for income generating projects.
He, however, unleashed the long tax arm on imports by cross-border traders.
Those leaving formal employment to venture into cross-border trade would have 10 percent of the $1 billion package taken away through withholding tax.
Withholding tax had not been applied on informal traders until last week's announcement.
Commercial imports by traders not registered with the Zimbabwe Revenue Authority were only liable to customs duties at the port of entry.
From January, the taxman has been instructed to chase revenue from hair salons.
The CSO had been reporting that hair salons had been the top drivers of Zimbabwe's escalating inflation, so Mumbengegwi saw an opportunity to make more money for the fiscus.
But those not keen to enhance their beauty in the salons will not be spared, according to Mumbengegwi.
He has instructed the taxman to hike taxes for Automated Teller Machines (ATMs).
ATMs attracted stamp duty of $2 500 per transaction but this would be increased to $25 000 from January, while, despite government being the architect of the crisis at the collapsed National Oil Company of Zimbabwe (NOCZIM), Mumbengegwi undertook to increase the NOCZIM Debt Redemption Levy from $2 500 per litre to $25 000 per litre.
The cost would ultimately be passed on to the consumer.
An economist said these taxes, without government addressing the supply side of the economy, would not make any difference. What is required, he said, was the introduction of incentives to ensure increased production.
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