eBusiness Weekly
The national budget for next year went through the House of Assembly last week, and while Minister of Finance, Economic Development and Investment Promotion Mthuli Ncube made a few adjustments following evidence led before Parliamentary committees and the debate in National Assembly, these do not really affect businesses and the private sector.
Almost all tax measures, including the 1 percent rise in company tax, the sugar tax for soft drinks and the further reduction of the number of products getting zero-rate VAT, went through as he announced in his budget.
The wealth tax on residential property was adjusted a bit so that more middle income housing will no longer be taxed, but that was about his only extra tax concession. The rest, which includes his widened tax bands, stays.
No one likes paying taxes, but countries need to be governed and their governments need to be run and need to be able to provide services. In theory you can have almost negligible services and pay for them from fees and, say, customs duties, which was the case a few centuries ago, but these days people want a whole lot more, like police, education, health etc.
The major point on the budget, as the International Monetary Fund picked up, is that Minister Ncube, with the full backing of President Mnangagwa, is maintaining the extreme fiscal discipline Zimbabwe requires.
In fact, again as the IMF picked up, the earlier decision that the Finance Ministry rather than the Reserve Bank of Zimbabwe will handle the foreign currency accounts was another positive move.
It prevented what amounted to the creation of local currency by the RBZ. The Ministry is limited in this regard and just has the power to move money between different currencies in the Consolidated Revenue Fund, but is totally unable to create or destroy any money in any currency.
That is a condition for currency and exchange rate stability. The Government can still borrow, and the budget has provision for some borrowing, but it all has to be out in the open these days.
The Finance Ministry and the Budgeting process in fact only allow borrowing for the capital account, and even then only for capital works where there is an immediate inflow of cash that can be used to service and pay off the loans.
Sanctions also effectively mean that Zimbabwe cannot access the concessionary loans that are supposed to help capital development and provide the extremely useful cushions countries might need when stabilising their currency.
So all this means that whatever the Government wants to do it must have the inflows from tax revenue to do it, and that has been the hallmark of the Second Republic.
The business world, though, is not really complaining that loudly about tax rates and tax policies. It is a bit like that mild whining you get from farmers in the better seasons, just to keep in practice, Even the sugar tax, the one major change for any particular industry, was not that bad once the Minister turned it from a number to what it means on a can of soft drink, about US7c, or a little over US20c a litre, which as he pointed out was not unaffordable on a semi-luxury. And that money goes to cancer care, so drinker of sugary drinks can feel virtuous when they pay a bit more.
The main and legitimate complaint from the formal business sectors, and for that matter from the formally employed and their PAYE taxes, is that the tax base in Zimbabwe is seen as too narrow.
Even the 2 percent transfer tax, which once did include a lot of the informal sector, is now avoided legally by that sector converting to cash using US dollar banknotes. So they do not pay it.
There are several legitimate gripes over the huge informal sector. While the stuff they sell is either VAT free, like vegetables, or has least attracted customs duties and the initial levels of VAT from the importer or producer and the effective wholesaler, the final step on the pavement or market stall or little shop is untaxed.
And the licensed and taxed businesses also resent the fact that the informal sector is not licensed and very often pays little or no rent for premises. So they feel there is an unfair trading advantage. And they have a very strong point.
In fact unfairness is probably the strongest complaint about the whole taxation system, that some pay and some do not.
The Minister has made some changes in the past to get the informal sector to pay. There are presumptive taxes, not always collected and those provisions not always enforced, and vendors in proper markets have that tiny tax that the owner of the market has to collect and forward.
This time the Minister tackled enforcement. Wholesalers must demand to see a final retailer’s local authority licence and a tax clearance certificate, and producers selling to a retailer must also demand to see the VAT registration certificate.
VAT registration now goes down to businesses on US$25 000 turnover a year, just over US$2000 a month, so a huge swathe of small businesses are now included.
Policing is easy for manufacturers, but there will be problems in the wholesale sector. If someone wants to buy 50 pairs of socks who is argue that they want it for personal use, rather than resale.
But there are other ways. In the 1950s there was a personal tax, an extra pound a month for payers of income tax, but a sixth of a pound, three shillings and fourpence, for domestic workers.
They had to go to a post office and get a free card and then buy an adhesive monthly stamp to put on it.
Inspectors just asked them to flip up their card. Most employers actually bought these stamps for three or six months at a time when visiting a post office, but the point was that it raised revenue at almost zero cost.
It was abolished in 1962 and replaced with sales tax.
At the same time city councils would sell hawker’s licences. These were for traders with no fix premises, not even a market stall, who carried their goods around in a bag, much like the present pavement vendors, or in a basket mounted on a bicycle.
No one was trying to stop informal trade, but they wanted to know who was doing it and where they lived.
It would be simple for councils to return to those licences, and for Zimra to demand a tax of say US$5 a month, or even US$2 a month, payable through a monthly stamp bought at a post office or some other convenient point and stuck on a card.
An inspector could spend a few seconds on each vendor asking to see the licence and the tax card when enforcement was in progress, and so the amount raised would greatly exceed the cost of enforcement.
This would widen the tax base dramatically and bring some order into the bottom end of the informal sector.
The sort of money we are talking about from each new taxpayer would not be large, but you multiply that by a few tens of thousands there would be a modest sum to add to some development budget.
Hawkers’ licences and a small but very simple tax would also end a lot of the unfairness that so angers so many in the formal sector.
There is also the positive argument that taxing everyone means that everyone has a stake in the country that goes beyond their birth certificate and national ID. They are now contributing to the costs, and so have a strong moral right to insist that the State programmes are cost effective and do benefit everyone.
This is an important point when you need to get people to take ownership.
The Minister’s own changes now make that multitude of small shops and cabins required to be formalised if they want to carry on doing business, otherwise they simply cannot get supplies very easily.
Now he and the Treasury officials, and for that matter the local councils, need to think of the next stage, how to get the multitudes on the bottom rung of the business ladder at least partially formalised.
And at the same time we can get fairness. Every business pays taxes, although obviously those on the lowest rung do not pay much.
