By Owen Dhliwayo,
As the world was seized with the Global Week of Action Against Inequality, the Fight Inequality Alliance – Zimbabwe urged the government to end tax-induced inequalities. The Global Week of Action Against Inequality ended on 22nd January 2022 having started on the 15th of January 2022.
The Fight Inequality Alliance- Zimbabwe bemoaned a situation where “poverty levels rose to an unprecedented level” whilst at the same time “the rich and political elites and wealthy corporates are registering a considerable rise in wealth and assets.”
The main objective of designing tax policy is to enhance revenue collection in order to finance the redistribution of public goods and services. This will enable governments to access funds needed to invest in development, relieve poverty and deliver public services. However, the tax systems of Zimbabwe are deemed to be “anti-people”
The current tax regime is premised on political motives rather than weighing up to the needs of the diversity of our society. This has fueled inequality, fosters corruption and undermined democracy. Taxing the rich and wealthy corporations is proving to be a challenge in Zimbabwe because their economic activities are heavily tied to the political elites, and are also members of the political establishment. In its statement, the Fight Inequality Alliance – Zimbabwe identified Huawei Technologies and Great Dyke Investments as having been awarded arbitrary, unreasonable, unjustified and unsustainable tax incentives. Great Dyke Investments was given a five (5) year tax exemption. “The same government is taxing the ordinary citizen to the last cent,” the statement reads.
An administration that allows the rich and wealthy corporations failing to contribute to the public purse erodes legitimacy of the tax system. In contrast, designing a good tax system that seeks to raise revenue from all sources and treat taxpayers equally will enhance socio-economic development.
Since 14 November 1997, Zimbabwe’s macro–economic condition deteriorated rapidly into a hyperinflationary environment. This has resulted in the erosion of disposable income of the majority population. In subsequent years, the country witnessed labour unrest as their savings lost value. The agricultural sector, manufacturing sector and the financial systems suffered great setbacks causing real base money to decline drastically in relation to nominal GDP. The government experienced lower tax revenue base and budget deficit rose significantly.
The country soon found itself with a highly informal economy.
The nature of Zimbabwe’s economy is largely informal and its structural characteristics involve people of low-income bracket. With a highly informal sector, the country is now witnessing a robust and complicated speculative tendency by those connected to political elites which in turn has given rise to the so-called “mbinga.” With a large informal sector, tax base has proportionately declined and becomes a vehicle for non – compliance by the so-called speculative mbingas. On the other hand, the country has a shrinking financial sector that makes it possible to enhance transparent accounting procedures.
The current tax design targets the poor people who are found at the bottom of the informal supply chain.
Through the Statutory Instrument 205 of 2018, the government introduced the mobile money and electronic transactions tax. The Intermediated Money Transfer Tax (IMTT) is a tax chargeable on transfer of money physically, electronically or by any other means and these provisions were later promulgated into the Finance Act of 2019. Under this new tax, transactions between $10 and $500 000 attract a 2 cents per dollar tax. In addition, the treasury has increased withholding tax from 10% to 30% as assented to in the Finance Act no. 7 of 2021. The 2% tax doubles and triples tax the poor in their online transactions and yet the rich are insulated by their fat pockets.
Therefore, it is important to have a broad-based tax system that is ideal for development and equality
In 2018 H.E Mr Muhammadu Buhari, the President of the Federal Republic of Nigeria pointed to “the corrosive role that secrecy jurisdictions play in concealing ill-gotten assets.” The international standards on tax transparency require every authority to unveil the ownership structure of legal entities and arrangements, including beneficial ownership, and ensure that tax administrations are able to obtain the information needed to assess their taxpayers’ assets and activities, no matter where these are carried out. This is what Zimbabwe should comply with in order to end tax-induced inequalities prevalent in our socio-economic environment.
The Statement of Public Debt that was tabled on 25 November 2021 by Prof Mthuli Ncube is quoted as saying “The total public debt as at end September 2021 amounted to US$13.7 billion, comprising of public external debt of US$13.2 billion and domestic debt of US$532 million.” However, the government’s debt servicing costs are growing exponentially resulting in liquidity challenges. The evolution of the public debt stocks in Zimbabwe has been existence for decades from the time it adopted a developmental strategy that relied on foreign financing.
The adopted developmental strategy resulted in the erosion of the country’s capabilities to effectively fund human developmental programs and public sector investments. In response to the plethora of challenges, the government instituted numerous revenue reforms that included the introduction of new taxes and increasing existing tax rates. These measures created inequalities in the country with the poor bearing the brunt of the revenue reforms.
“There is urgent need to instate stronger systems of capital controls and democratic oversight mechanisms to reduce the leakage of public resources through corruption, illicit flows and tax avoidance.” Fight Inequality Alliance – Zimbabwe
