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Austerity taxation will never be fully accepted

07 Dec, 2018 - 00:12 0 Views

eBusiness Weekly

The austerity focus of the 2019 National Budget and Monetary Policy was not something any well-informed person could not have anticipated. We all knew that we were set for difficult measures which needed to be taken in order for our country to emerge from the economic unpleasantness that we find ourselves in. We were mentally prepared to a large extent. The gap is there, all wide open for all to see. The what, how, when and who questions needed to be answered. This author wondered which of the widely spoken about economic objectives, viz. dealing with the twin deficits or promoting investment into industrialisation of the economy the taxation tool would be used for. Would taxation be turned to more as a tool to raise dollars to repay the outstanding national debt by raising rates and/or types of tax? Or, would tax rates or types of taxes be lowered to encourage production? The Fiscal Authority was facing a rather difficult conflicting situation.

The Hon Prof Mthuli Ncube tried to use the taxation tool to meet a number of objectives. As a result, his budget generally attempted to meet the idyllic model of taxation. Ideally the burden of taxation should be shared equally among all citizenry. This has been the expectation from the taxpaying populaces since time immemorial. Even Jesus Christ paid his share as recounted in Matthew 17 from verses 24 to 27 of the Bible.

For starters, he chose the easiest and more direct option to meet the primary thrust of the policy. The main objective was to address the twin deficits. We saw the almost immediate introduction of a 2 percent “chete” transaction tax even before the Fiscal Policy was pronounced. Then we now also have a long list of products which now require payment of duties in foreign currencies on importation. This measure is effectively an increase in duty as we all know that this foreign currency will not be sourced for a song in most of the cases. The Monetary Authority clearly buttressed the foreign payment transactions processes in his 2019 policy such that no one with a non-essential import is likely to get any forex from the Reserve Bank of Zimbabwe. So people have to revert to their “free funds”.

The Fiscal policy statement also did show intention to address other economic objectives using taxation. These measures to encourage job creation are yet to be implemented though. Presumably, Government is still in consultations with the private sector to come up with the best way to bring these measures to the investors, corporate and entrepreneurs.

Government will need to do a well -informed assessment of the potential impact of these measures otherwise it will lose the much-needed tax revenue for nothing.

Since the early 90s, we have seen our Fiscal Authorities introduce various rebates of duties, suspensions and reprieves to either promote investment into a sector, protect an  industry or protection of the socially vulnerable in the society. The 2019 Budget maintained previous dispensation rebates and added a few to the list. This author has reservations on the effectiveness of these measures having conducted an academic research into the Tourism Rebate’s effectiveness in encouraging investment into the sector at its inception in 2009.

Only 6 percent of registered operators from the sample considered applying for the rebate. The rest could not due to various constraints, chief among them being financial and lack of awareness.

The minister alluded to having widely consulted in order to come up with the Budget. He sure did because our sentiments in “Customs Duty for a limb” piece made sometime earlier this year seem to have found their way into the Budget.

Customs duty will be removed from imports for use by people living with various disabilities. They will no longer need to take the long and bureaucratic rebate application route. This was a commendable move. Various other socially inclined measures were announced in the Budget including zero percent duty for sanitary ware.

The other non-austerity taxation measures included the widening of the employment income tax bands where the minimum taxable income is now $4 200 per annum from $3 600. He could have done better by widening the next tax bands which basically remained the same as before.

If the major concern of those who are anti austerity taxation measures was with the incidence of the increased tax on economic layers of society and/or the justifiability of the additional tax from the standpoint of horizontal or vertical equity, the above discussion should give them an idea of what the 2019 Budget tried to achieve. The only “vice”, the 2 percent tax generally impacts every Zimbabwean who transacts at the same rate. I am sure the most astute among us could even slightly reduce the rate through the use of proper payments planning?

Austerity taxation will never be acceptable because it is more than the normal taxation which people generally dislike.

Zimra is currently battling to enforce compliance and to educate people that it is the taxes which are used to pay for a good infrastructure, law and order, security, public medical & educational services, proper governance and other benefits.

The minister has a tough time coming up with the various taxation measures which are both favourable and unfavourable to the populace depending on where you are standing. It is impossible to please everyone. The minister is encouraged to legally effect the measures which result in rebates, suspension of duties and other people friendly measures announced in the budget. Zimra will not start implementing these until the respective statutory instruments are in place.

 

Disclaimer: This Article is not meant to create a consultant/client Relationship. Readers are advised to consult their Consultants for specific advisory services.

 

About the author: Gertrude Mawire is a Fiscal Compliance and Investment Advisor based in Harare. She writes in her personal capacity. Gertrude, a member of ZNCEE ( customs & excise experts) holds an MSc in Finance & Investments (NUST) Bachelor of Business Studies (UZ), IOBZ Diploma various other Certificates. She can be contacted on [email protected], 0712 437 256.

 

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