THE country's tax collection agency, the Zimbabwe Revenue Authority (ZIMRA) has threatened to punish small and medium scale enterprises (SMEs) who will fail to register for value added tax (VAT), as it escalates its desperate bid to boost revenue to fund a cash-strapped government.
The Financial Gazette's Companies & Markets (C&M) can report that the beleaguered tax collector, which is under pressure from Treasury, has also warned of hefty penalties against companies that violate the country's tax laws by failing to remit what is due to ZIMRA, especially VAT and pay as you earn (PAYE).
Zimbabwe's economy has become largely informalised, making it difficult for government to collect taxes. Many companies have closed and many more continue to shut down due to operational challenges, reducing the tax base.
To worsen the situation, international financial institutions have not been giving budgetary support to Zimbabwe due to debt arrears, leaving government without any other form of funding but taxes and domestic borrowing.
The move to force SMEs to register for VAT appears to be part of the latest government initiatives to widen the tax net and boost revenue.
Revenue authority sources said SMEs have been given up to the end of June this year to register for VAT.
ZIMRA's acting commissioner general, Happias Kuzvinzwa, has warned SMEs that fail to comply with the tax directive to brace for severe punishment.
It is understood that ZIMRA will apply the law in retrospect after the deadline lapses.
Kuzvinzwa said: "To increase the tax base, we have given SMEs up to the end of June this year to come and register for VAT voluntarily and make voluntary declaration of their income. This is a window of opportunity where no questions would be asked, no penalties are levied for failure to pay tax over the years."
"This is a commendable development and is expected to increase compliance levels and the much-needed revenue. But, when the period elapses, it will be a different story and it will be difficult for them as those that would have failed to take advantage of the window will face the full wrath of the law."
The tax collector also expressed concern with local companies, revealing that several of them around the country were not remitting monthly VAT and money deducted from employees.
Kuzvinzwa said the outstanding money runs into several millions of dollars.
"Several companies are not remitting VAT to ZIMRA and have decided to use it for own purpose," said Kuzvinzwa.
"Employers have also decided not to remit what they would have deducted from their employees to government. VAT and pay as you earn must be paid to government without excuse. By not remitting VAT and PAYE, the companies would have betrayed the trust placed in them by government and by the people of Zimbabwe, that is to collect the two in full and remit in full and on time to ZIMRA."
Kuzvinzwa warned that ZIMRA was seriously considering attaching properties belonging to tax dodgers.
"(But) let me say to those who are playing 'catch me if you can game' (that) soon the law will catch up with them. We want to make sure we get rid of free riders. In some countries they send tax dodgers to prison. After that they come back and pay taxes due. In Zimbabwe, we have not gone that far. We have been garnishing (accounts) as a last resort. And when we do that, we will only be following the footprint of money owed to government.
"Our patience, however, is running out. We would soon start attaching properties" added Kuzvinzwa.
He admitted that the tax authority was facing more challenges in its bid to increase the tax base.
"ZIMRA's quest to increase the tax base and enhance revenue collections is not without challenges. Base erosion and profit shifting, which is referred to as tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no tax location, is a major challenge we are facing.
"Tax evasion, smuggling, corruption, money laundering, transfer pricing and all forms of illicit behaviour have the undesirable effect of derailing economic development in our nation. The prevailing harsh economic conditions also fuel all these vices, and have resulted in some companies accumulating huge debts. However, the authority works tirelessly to deal with all these challenges and to close any loopholes."
Cumulative revenues from January to December last year were four percent lower than budgeted.
The under-performance in revenue for the period left collections at US$3,4 billion against a target of US$3,6 billion.
Apart from company closures that claimed thousands of jobs, the country's frail economy has suffered knocks from retrenchments.
Further it remains difficult for the remaining few companies that are still operating to comply with tax demands.
Poor revenue streams into government coffers have meant that Treasury has been unable to pay its more than 300 000 strong workforce on time.
The salary and wage bill accounts for over 90 percent of fiscal expenditure. This has crowded out expenditure on growth stimulating capital projects. This in turn has now forced government to desperately turn to the country's informal sector to pay tax, as revenues continue to shrink due to a worsening economy.
Collection of revenue has been on the downward trend with successive years of missed revenue targets as the economy continues on a slippery slope.
ZIMRA is now owed close to US$3 billion by businesses and individuals in unpaid taxes.
It is also believed that the tax collector is losing almost US$1 billion yearly to smuggling, tax evasion and tax concessions.
The tax collector has also embarked on another draconian measure, hunting for debtors of defaulting companies.
The pursuit of debtors for companies with outstanding tax obligations came after ZIMRA realised that it could not recover much from garnishing bank accounts, as there was very little money trickling into accounts of affected companies.
However, there has been a public out-cry against ZIMRA's hostile enforcement against defaults in VAT, corporate tax and a string of fees and charges that has left hundreds of firms tottering on the brink of collapse.
ZIMRA has gone further, embarking on lifestyle audit of its staff.
Employees are asked to justify any suspicious bank deposits, mobile money transfer transactions and the source of funds for properties in their names or their families.
Those who fail to justify their transactions or the source of income would be fired on suspicion of engaging in corruption.