Zimbabwe’s tax agency says unpaid levies have doubled to over $1 billion over the last two years as the economy tilts towards the informal sector due to company closures, warning that it could miss this year’s revenue targets with dire repercussions for Treasury.
Zimbabwe finances its entire budget from taxes because multilateral lenders like the International Monetary Fund (IMF) and World Bank have said they will only resume lending to the country once it clears its over $10 billion debts with the global lenders.
This year, Zimra has targeted to collect $4.1 billion revenue against expected expenditure of $4.115 billion and Pasi said the country needs urgent policy reforms to address the rapid de-industrialisation and the informalisation of the economy, adding that the agency “would have challenges in meeting targets.”
Official data shows that 4 610 companies closed operations between 2011 and October last year, rendering over 64 000 workers jobless, although analysts believe the figures could be higher.
Company closures have resulted in the proliferation of informal businesses that are largely evading tax obligations, Pasi said, adding that outstanding taxes were at $1 billion, from $500 million in 2013.
“We have challenges with the SMEs because there is a high level of non-compliance. Most of them are of no fixed aboard. We need to have a developmental industrial policy which can help us resuscitate industries,” Pasi told a parliamentary portfolio committee on SMEs and cooperative development.
“The level of compliance is a reflection of the current economic hardships where we have liquidity constraints, lack of credit lines which I think have also been made worse by the closure of too many companies.”
Zimra also threatened to ‘act ruthlessly’ on companies and individuals that failed to negotiate with the authority for a payment arrangement of outstanding tax obligations during an extended window opened last year.
“Amnesty, we had to extend it, it is now coming to a close at the 30th of this month and I must say the response has not been what we expected. We came up with the issue of amnesty because there was a lot of pressure on Zimra that we were being too heavy-handed in collecting revenue,” Pasi said.
“We are now saying that after the amnesty, we need to be ruthless and we may want our minister to bring some legislation which can tighten it further for those who are delinquent because we have done all we can to say ‘come clean’.”
Limited access to long-term capital and antiquated machinery has resulted in thousands of firms folding, driving thousands into to the poorly regulated informal sector. Government, two years ago, formulated its ambitious blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zimasset) to stimulate economic growth but implementation has stalled due to poor funding for critical projects.
“We need to address this issue to the extent that it should be given the urgency that it deserves. Sometimes I feel that as Zimbabweans we are too laid back, we believe things will right themselves at an appropriate time but we are creating a generation which may never know what formal employment is all about and that generation is wasted investment,” Pasi said.
“If we don’t do that then you will find out that we will spend a lot of resources dealing with a passing phenomenon. We will put a lot of money trying to make sure that vendors are accommodated but when we have created employment as we must, we would have built a lot of white elephants.”
Pasi also appealed to Parliament to push for measures to improve the country’s rankings in the ease of doing business. He said Zimra would also introduce new measures to levy local taxi operators as well as re-introduce encrypted fiscalised tax registers to widen the revenue base.
Commenting on the proposed Special Economic Zones now seen in government as a source of foreign direct investment inflows, Pasi said the agency is pessimistic that the economic zones would spur investment.
“We have had these economic zones in the past. We called them Export Processing Zones and then we abandoned them because they did not yield the desired results. So now I see we are almost repeating the same thing and we are likely going to see the same results,” Pasi said.-The Source