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Overhaul punitive tax system: ZNCC tells Treasury

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ZIMBABWE’S Treasury should overhaul its punitive tax system to plug revenue leakages from both formal and informal businesses, a business organisation has said.

BERNARD MPOFU

With independent statistics showing that nearly 75% of the economy is in the informal sector, current layers of tax obligations from various government departments have been blamed for the revenue slippages.

According to a pre-budget submission made by the Zimbabwe National Chamber of Commerce (ZNCC), the country’s taxation system is characterised by too many tax heads with very high tax rates.

“Also, the Zimbabwe tax system does not promote compliance and investment but rather promotes tax evasion, defaults, informalisation of businesses and company closures. The system is penalising the complying formal businesses the most,” the ZNCC says.

“The system is punitive given the prevailing operating environment as it increases the cost of doing business rendering local products uncompetitive. In other words, the punitive taxes threaten the viability of enterprises. It further squeezes businesses and individuals of their hard-earned disposable income and is infested by too high penalties.

“The tax system treats small and large businesses alike, hence stifles growth, particularly of smaller companies. This was particularly with reference to corporate/income tax which the business community regards as too heavy for SMEs ( small and medium enterprises) and treats them the same as big corporates. In this regard, the tax system is geared more on tax collection than industry growth.”

Experts say the country’s income tax threshold has triggered skills flight over the years.

“As the budget is being drafted, the issue of income tax needs to be addressed. Zimbabwe Revenue Authority’s position on the income tax violates the fundamentals of taxation and the fundamentals of taxation are not being upheld. A case in point is when a company receives payment through the bank, 20% is converted into RTGS at the prevailing RBZ (Reserve Bank of Zimbabwe) rate,” the ZNCC further said.

“Zimra on the tax side deems that the business has received US dollars and should pay the portion of income tax in US dollars when in actual fact the business is no longer in possession of the full amount of the US dollars because part of the payment has been converted to RTGS. Therefore, the tenet which states that tax should be fair in this case falls short. As an example, the net profit margin is 20%, which is most likely the case for businesses in the manufacturing sector. In a case where the RBZ has already converted the received payment to RTGS then, where is the US dollar component of profit supposed to come from?”

Last month, the manufacturing sector representative was lobbying the government to slash taxes levied on exporters, among other tax reforms, as industry continues to face stiff competition from regional peers due to multiple layers of statutory obligations.

Local firms are currently operating below optimal capacity due to limited access to long-term financing to re-tool, as well as tariff and non-tariff barriers hampering them from penetrating new markets.

The ZNCC further said the government should, among other measures, widen taxable income to 35% to stimulate domestic savings and consumption. 

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