eBusiness Weekly
Getrude Mawire
I must say I was rather disappointed when I read that Zimra was advocating for legislative changes to allow for stiffer penalties for tax defaulters in order to encourage compliance and raise more revenues. This was pronounced at a seminar in Bulawayo sometime in August 2017.
From my experience in the tax and customs compliance field, the word or phrase ‘engagement’ would ring better tones to me than ‘stiffer penalties’. It is high time our fiscal authorities realize that fighting can never bring any positive results especially in the current economic environment that we are in. Retribution is really not the way to go, we are also already in retribution mode.
Oliver Mtukudzi’s song with the words “Ongorora chikonzero chaita musoro uteme’’ comes to mind when I consider such issues.
We need to really look at the environment first before rushing to advocate for harsh treatment of a group of constituents.
History has repeatedly shown that once cornered the human being tends to behave in a rather unpleasant manner. Societies have rebelled against unjust wholesale treatment…anti-apartheid, chimurenga revolutions and other movements.
It is unfortunate but the worker mantra ‘Touch one touch all’ may end up materializing with the few that are compliant taxpayers ending up empathizing with the non compliant ones.
It is worth noting from the onset that tax compliance rates are different the world over. For example, according to a 2013 scholarly study, of the African countries studied, Libya had the highest average, compliance rate of 64.45 percent, Angola 42.5 percent, Namibia 36 percent, Botswana, Mozambique are in the 31 percent range.
Zimbabwe was not part of the study, but a figure of 30 percent has been thrown into the fray several times. The biggest African trading countries South Africa and Nigeria had averages of 26,45 percent and 8,25 percent respectively. This study, which appeared to concentrate more on the effect of the level of tax rates on compliance, concluded that a reduction of the tax rates by those countries whose average tax rates were above the 29,35 percent continental average would result in increased compliance.
While the average rate of tax has a great bearing on the compliance rate, I believe there are many other factors which affect the compliance rate including the level of penalties, the complexity of tax payment processes, which affects the ease of tax payments, types of taxes, hours spent paying taxes, the legislative environment, the level of awareness of tax issues, Zimra Audit processes and the general level of economic development in the country.
A lot of other studies have already been done concentrating on these determinants of tax compliance for different countries. We need to have our own country specific study in order to apply the most reasonable and effective solution to achieve compliance rates of the said 30 percent.
For example, we may need to seriously explore the impact of the nature of our economy, whereby some experts are saying 90 percent of it is Informal. The Informal sector is inappropriately captured in our tax policies? Though our average tax rate is slightly below the 29.45 percent continental average, is it low enough for the struggling informal sector? If we say it is low enough, we still need to look at the impact of the ease of paying taxes on compliance in Zimbabwe.
With a ranking of 143 out of 190 in the ease of paying taxes category of the World Bank ease of doing business index, it is obvious that we still have a long way to go in order to improve the taxpaying environment.
We need to make a staggering maximum of 51 percent tax payments per year requiring up to 242 hours in man hours to prepare the tax returns, make tax payments and attending to queries. This is much more than the 37 payment average for the Sub-Saharan region. Of course the region’s average time spent on paying taxes at 280 is much higher, but I believe it is as a result of the South African system, which is worse than ours. Now these figures likely assume an ability to even attempt to pay the taxes.
They are applicable to companies with a potential to even consider even paying the taxes. In all truth and honesty, I cannot picture our informal sector warming up to the idea of complying with these many tax requirements.
They simply do not have the skills or financial muscle to acquire the skills. This explains why Tax Consulting firms clientele basis are only made up of the medium to large companies.
Even if the informal sector players were to attempt to comply, the World Bank Index would surely need to be adjusted upwards.
More man hours would be needed to be spent on compliance, once again because another determinant for compliance, legislative simplicity is absent in our Tax and especially Customs legislation.
Imposition of stiffer penalties to encourage or force compliance is highly impractical because Zimra already charges some of the highest penalties and interest in the continent. You would think countries like Libya for instance, with its perceived culture of harsh punishments, would equally have high penalties for tax default.
This is not the case; they levy a penalty of only 1 percent per month up to a maximum of 12 percent. Zimra charges a hefty minimum of 25 percent to 100 percent for late payment of various taxes. Even with the ceiling of $30 per day for 181 days, these penalties are still outrageous. Imagine if you delayed paying the three main tax heads, VAT, Income Tax and PAYE and the outstanding amounts warrant payment of the maximum $30 per day for 181 days!
You would be facing a need to fork out $16290.00 from nowhere, just like that. That is not all; Zimra also promises a bonus prosecution on top of the financial haemorrhage they would have subjected you to. Now if this does not force any ‘normal sized’ business in Zimbabwe to consider paying their taxes if they can or close shop, hide as best as they can, if they cannot pay, I do not know what will.
Customs legislation already adequately provides stiff penalties for non compliance. With a maximum of three times the duty paid value of the imported goods plus prosecution being provided for, I am not sure what other stiffer penalties our beloved Zimra would like the legislature to provide for. It appears the penalties themselves are encouraging non compliance. Instead, Zimra should lobby for the review of these penalties to lower and realistic levels, levels where the Importer will have a choice to comply or not to.
Zimra prefer stiffer penalties in order to raise more revenue? They should consider that stiffer penalties may actually reduce their revenues as Taxpayers may be discouraged from declaring their income. If they do, they may be tempted to consistently under declare income so that they pay less tax. This will further increase Zimra’s audit staff requirements if they do discover the under declaration.
Finally, this author is simply urging Zimra and its parent Ministry of Finance to stop trying to kill the goose that lays the egg. They are better more amenable ways of improving compliance and revenue collection which are at levels that are comparatively not so bad by regional standards. In addition, they should lobby their other government ministries and departments to work harder in improving the economic fortunes of the countries so that Tax and Customs revenue are not the only source of government revenue.
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], [email protected] and 0712 437 256
