Finance Minister Patrick Chinamasa has limited room to manoeuvre in his endeavor to widen government’s shrinking revenue base when he presents the country national budget for 2015, analysts have warned.
Having already imposed a stern taxing regime, analysts contend that government cannot raise taxes any further but instead should focuses on controlling its expenditure.
In September, Chinamasa bumped up taxes to shore up the country’s dwindling revenue base in the face of ballooning expenditure with over 70 percent being gobbled by civil servants’ salaries. The move saw tax increases on fuel, employee allowances and mobile phone credit and handsets from September.
Customs duty on motor vehicle imports also went up in the same month while excise duty on fuel rose from 30 cents per litre to 35 cents for petrol and from 25 cents to 30 cents per litre for diesel, resulting in fuel hikes.
However, as the year comes to an end, government has failed to meet its revenue targets with statistics showing that government collected $305.9 million in taxes in August down from a target of $334 million.
Labour and Economic Development Research Institute of Zimbabwe (LEDRIZ) director Godfrey Kanyenze said that government had little room for further revenue creation.
“It is a tight scenario, government has already pushed people and business to the edge. The major challenge is government’s expenditure which is not sustainable.
“Government’s focus should instead be on readjusting its spending habits and rationalizing its expenditure with the revenue on the ground,” he said.
Economic analyst John Robertson said that reviving industry and promoting investment would provide government with sustainable revenue.
“An aggressive tax regime does not do any good for government revenues when the local industry is not producing anything.
“First you would need to have industry up and running and that way government will be guaranteed of revenue inflows in the long-run. Raising taxes any further will only cripple the few remaining industries which are still operational,” he said.
Government collected $1.735 billion for the first six months to June against a target of $1.847 billion, with value-added tax (VAT) and pay as you earn (PAYE) being the major contributors.
Expenditure in the first half stood at $1.953 billion, exceeding the $1.848 billion target. The government wage bill shot up to $1.486 billion, representing 76.1 percent of total expenditure, a situation which the international Monetary Authority said was unsustainable.
In 2014, the mining sector, which has anchored the country’s economic recovery since 2009, was initially projected to grow by 10.7 percent driven by increased output for nickel, coal, gold and diamonds.
However, weak international prices for some minerals, frequent power outages, obsolete equipment and inadequate funding for recapitalization undermined performance during the year necessitating a downward revision of sector growth to negative 1.9 percent.
In an attempt to cushion the sector from the above said factors conspiring to stifle growth further Chinamasa instituted a cut in royalties for primary gold producers to five percent from seven.
Robertson however said that the mining sector is likely to shrink further in the absence of policies that attract new investment in the sector.
“Production is likely to further shrink. We cannot expect any significant developments in the mining sector as long as we have policies that dispel investors.
“Take the indigenization policy, the tax and the royalties- all of these collude to chase away people looking to make serious investments in the sector,” he said.
Kanyenze said the future is not promising as there was no hope of luring investors.
“No meaningful investments are going to flow our way in 2015 given the current state of doing business.
“Government has to send out a clear signal that it is ready to do business. Everyone will be looking at how we as a country perform on the IMF’s staff monitored programme,” he said.
The main objective of the programme is to strengthen the country’s external position as a prerequisite for arrears clearance, resumption of debt service, and restored access to external financing.- The Source