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‘Tax regime widens inequality’

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CIVIL society organisations under the banner of Fight Inequality Alliance-Zimbabwe have called on Finance minister Mthuli Ncube to address tax inequalities that have widened the income gap between rich and poor Zimbabweans.

MARY MUNDEYA

The government recently made changes to tax laws through Finance Act No.7 of 2021, which became effective this January. Its provisions, such as the increase of withholding tax from 10% to 30% and introduction of income tax in foreign currency for those who are paid partly or fully in forex, have been met with widespread outrage by citizens.

Vulnerable Zimbabweans have accused Treasury of worsening the tax burden of the already impoverished majority whose earnings are being eroded by the relentless increase in the cost of living.

Speaking to The NewsHawks, Angela Mandoreba from Fight Inequality Alliance-Zimbabwe said the 2022 National Budget showed how the nation had adopted a regressive tax regime whose burden is weighing heavily on the shoulders of poor Zimbabweans.

She said the rich and corporates are not paying their fair share of tax.

“Looking at the 2022 National Budget in Zimbabwe, I think it’s just a confirmation of how we have migrated from a progressive tax regime into a regressive tax regime. A regime where we see the burden of taxation being weighed heavily on the shoulders of the poor Zimbabweans yet the rich and corporates are not paying their fair share of taxes,” Mandoreba said.

“Harmful tax practices are further entrenching tax injustice in Zimbabwe, multinational companies are given tax incentives and tax holidays. For instance, last year Great Dyke Investments, which is a mining company, was given a tax exemption, which is very unfair. If we give unjustified tax incentives to multinational corporations, it means that the burden of raising revenue through taxation is passed on to poor citizens.”

Economist and founder of the SME Association of Zimbabwe Farai Mutambanengwe echoed Mandoreba’s sentiments, saying Zimbabwe’s tax environment is very hostile compared to other countries in the Sadc region.

He said the recent change of tax laws was unjustified.

“Generally our tax environment is comparatively hostile when we consider our neighbours because first of all we have the Intermediated Money Transfer Tax (IMTT), which is a tax on transactions which does not exist in any other jurisdiction.  When that tax was introduced, the minister had highlighted that they want to rope in the informal sector into the tax net, which is fine. What we were saying is that it becomes deductable against one’s tax liabilities and becomes more like a pre-payment for tax so that when I do my final submissions, I can also deduct the amount that I would have paid as I transact, but the minister has refused to allow that, hence IMTT is a tax on its own, which is unprecedented,” Mandoreba said.

“We have highlighted to the minister that we feel the increase from 10% to 30% on withholding tax was unjustified, but the minister has said the hike was a penalty for non-compliance. We also had suggested that the inItitial 10% withholding tax becomes more of a presumptive tax so that once someone has the 10% deducted, especially for SMEs, that it be considered as tax payment, but the minister rejected our request.

“Because of the stage where we are, where we are trying to grow the economy, you would want to incentivise small businesses by having lower tax, just like we have incentives for exporters, for FDI (foreign direct investment). We have to incentivise the creation and growth of new enterprises since we have such high levels of unemployment and we are aiming to become an upper middle-income economy by 2030. Our tax approach needs to be growth oriented and be consistent with where we are as a country economically,” Mutambanengwe added.

Trade finance specialist and economist Persistance Gwanyanya said the government, through the current tax regime, is trying to rebalance its books since it has been running budget deficits.

“Government is trying to rebalance its books. In the past the government has been running extensive budget deficits and the only new source of income is to play around with taxes and enforce compliance on taxes because we don’t have a firm source of revenue as a country, so unfortunately that’s what is there,” he said. 

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