The Herald (Harare)

2 July 2014

Zimbabwe: Taxman Mustn't Bite Hand That Feeds

editorial

The Zimbabwe Revenue Authority has in recent months been tightening up on tax assessments and tax collections to ensure that all the taxes Parliament has commissioned it to collect are in fact paid into the Government's account.

No one can object to the law being applied.

But the move from an era of some slackness, and slackness by tax payers as well as some Zimra units, to an era of strict auditing and enforcement requires careful management if the economy is not going to be damaged.

Tax collecting has some similarities to dairy farming; the farmer wants the maximum amount of milk, but he also needs healthy cows, not sick or dead animals.

There appear to be two elements in Zimra's drive this year.

First there are the taxes where employers and those in business are simply collection agents, albeit unpaid agents, for Zimra. Everyone in any sort of business whatsoever is obliged to collect VAT and pass this on promptly to Zimra. And all employers in the business world are obliged to collect PAYE monthly from their staff and again pass this on to Zimra promptly.

There are odd additional taxes where businesses are simply collection agents, but the vast bulk of cash in this group come from VAT and PAYE.

It is no secret that some companies have delayed passing on what they have collected, largely because of their own cash-flow problems. Zimra, correctly, notes that it was commissioned by Parliament to collect taxes, not provide short-term loans to taxpayers.

But discretion was exercised a bit more leniently in the past and we need a mechanism to manage the transition to the present less lenient position.

The second set of disputes with Zimra arise from the plethora of allowances and benefits that far too many businesses and National Employment Councils have introduced over the years. From the mid-1980s these are all supposed to be taxed as income, although in some cases, such as company cars, there are different ways of calculating the benefit.

But generally in everything except certain civil service allowances all these benefits are supposed to be treated just as if they were salary.

Most are in most businesses, but the odd one has raised concern at Zimra. It would, in fact, be more sensible to give everyone all their pay as salary, rather than as a list of allowances and even to recalculate the civil service allowances to take into account that they will be taxed so the net sums come to what civil servants get now. This would allow far more exact comparisons between what the Government and private sector pay.

However, again we need a transition mechanism once everyone agrees that a benefit that was not taxed should have been taxed.

We would like to suggest several ways Zimra cannot just enforce stricter compliance but also collect back-taxes without killing the cows who provide the milk.

Zesa, of all people, provide the outline of a solution. That utility was faced with a lot of bad debt. The simple solution, with the introduction of pre-paid meters, was simply to make customers pay all new bills promptly and then add a 20 percent surcharge to collect past debts. No one likes this. But it works rather well and Zesa are steadily eliminating customer debt while collecting their dues each month.

Zimra could do the same. VAT for a start must be paid promptly and estimated VAT could even be paid within days of collection with the adjustments paid early the following month. The PAYE regulations can be enforced. Those who still owe Zesa money can then be given a fair surcharge to pay in addition until their debts are cleared. This can even go right down to the tiny businesses and their US$100 a quarter presumption tax. If they owe Zesa then Zesa can collect US$120 a quarter until all is paid. With zero inflation Zimra does not lose but the tax-payers are still alive at the next milking.

What we need is a way past slackness and disputes are not used to kill business but that the debts are paid and everyone gets into the habit of paying their taxes in full and on time.

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