eBusiness Weekly
Enacy Mapakame
Zimbabwe has a wrong and regressive tax structure that perpetuates deep-rooted inequalities between the haves and the have-nots, analysts have said.
Yet inequalities by nature undermine good governance by enabling political capture by elites and entrenching their interests above those of the wider population, making it harder to fund universal public infrastructure, services and increasing levels of crime while also creating opportunities for exploitation.
At an engagement meeting with a coalition of civic society groups under the banner “Fight Inequality Alliance Zimbabwe (FIAZ)” held in the capital, concerns were raised over growing inequalities in the country as a result of among other factors a tax structure that is punitive, characterised by high presumptive taxes for instance.
As a result, calls were made for Government to come up with a progressive tax system, a tax rate which increases as the income increases, pro-poor and considers the vulnerable groups as the current regime continuously unfairly divides Zimbabweans across classes, religions, sex and generations.
Austerity measures were implemented in 2018 that increased taxation but reduced spending on social protection.
Economist, Vince Musewe, said the current tax as well as the National Budget structure, were wrong and with misplaced priorities and called for fair redistribution of revenue to protect the vulnerable, youths, women and people with disabilities.
He added the tax system in the country is regressive, for instance the 2 percent tax enforces a flat percentage rate across all class levels regardless of income levels.
“Most of the revenue comes from indirect taxes that are regressive and if an economy relies on indirect taxes, then there is high inequality,” he said.
Indirect tax is borne by someone other than the person responsible for paying it to the tax authority and is regressive as it has a flat rate levied on taxpayers regardless of their incomes.
“The most appropriate tax structure is where we do not tax the poor, taxes from the mining sector can take care of the economy. Why should a grandmother in the rural area be taxed at the same rate as someone who is wealthy?
“The National Budget structure is also wrong; the priorities are misplaced. More money is channelled towards for instance Defence and less on social protection issues, that is wrong,” he said.
FIAZ national coordinator, Angellah Mandoreba, highlighted the need for the introduction and implementation of a wealth tax to facilitate the redistribution of wealth from people who have too much wealth to meet the needs of the majority. Additionally, awarding of tax incentives to multinational corporations must be an outcome of a stakeholder consultative process.
“Progressivity of a tax system is determined by the degree of redistribution. So far, the Zimbabwe taxation system is unfair and inequitable in violation of Section 298 (1) (b) (i) of the Constitution and divorced from the ability to pay principle.
“The margin between the contribution of individuals and companies says a lot. It is regressive as it generally benefits higher sections of the society yet people with lesser incomes are burdened with higher rates of taxation yet they benefit very little from the taxes they pay.
“This perpetuates poverty as it takes more from those with less and takes less from those with more,” she said.
However, in a detailed report for the recently concluded Article IV Mission (Staff Monitored Program) to Zimbabwe, the International Monetary Fund (IMF) called on the Government to raise tax earnings, end currency controls and limit spending.
To increase tax earnings, the Government needs to undertake revenue mobilization efforts to increase revenues by about 1,5 percentage points of GDP over the 2021-2026 period.
The civil society however says the calls by the IMF for the Government to increase taxes are at odds with the public’s lived realities where poverty levels are rising and inequality gaps widening.
Latest statistics from the Consumer Council of Zimbabwe (CCZ) show that in March 2022, an average urban family household of six needed about $93 000 to not be considered poor, a 138,5 percent jump from $39 000 recorded in May 2021.
While the cost of living has ballooned, the average salaries have remained sticky upwards.
“Going by CCZ statistics, it means a majority of civil servants are trapped in poverty as they are earning an average salary of $40 000 per month. As such, eliminating VAT zero-rating as being championed by the IMF will trap millions of households into a vicious cycle of poverty.
“In October 2018, the Treasury introduced IMF-style austerity measures and currency reforms that lead to increased exchange rate depreciation, rising inflation, and increased poverty and marginalisation.
“The recent calls by the IMF for more taxes in a tightening economy usher in the second coming of -ESAP.
“This, however, would be a disaster since the country is already facing macroeconomic volatility,” said the Zimbabwe Coalition on Debt and Development (ZIMCODD).”
