HARARE - President Robert Mugabe’s financially-strapped government is hiking taxes in a desperate bid to boost public finances, experts said yesterday.
They said Zimbabwe needs large-scale budgetary support, a standby budgetary programme and a prolonged surge in foreign direct investment (FDI).
The hike in taxes is expected to free up spending to bankroll government workers’ salaries and other crucial services.
Zimbabweans are already being taxed to death, with fresh proposals by the Government to hike toll gate fees and trawling company accounts leaving locals and businesses in pain.
The hikes have raised tax rates both for the poor and the rich to record highs, and tax experts say when one adds up all forms of taxation in the southern African country, the average Zimbabwean will soon end up paying about half of their income in some form of taxes to finance government expenditure.
Zimbabweans pay State income taxes, State and local sales taxes, property taxes and excise taxes among many others.
Government hopes spending more on public services can steal the thunder from the MDC led-opposition which has been sledging the ruling party over its “appalling” economic stewardship.
The Zanu PF government last July won an unprecedented eighth term in power, with the MDC insisting that the poll had been rigged.
But in the wake of the ruling party’s poll victory, income disparities have been growing faster than in any other country in the Sadc, and newspapers daily highlight a deepening liquidity crunch that has seen government increasingly fail to meet its obligations.
Since President Robert Mugabe was re-elected in 2013, the Justice department and the taxman have been aggressively filing tax-evasion charges against wealthy business-people, as well as celebrities.
Zimra commissioner general Gershem Pasi told a parliamentary portfolio committee last week that garnishee orders were being used on politically-connected tax dodgers.
“The garnishee orders, yes, we use them but its the last resort,” Pasi said. “We encourage dialogue, we want people to come and to be honest and declare their cash flow so they need to pay their duties and taxes and they should stick to those terms which would have been agreed on.”
Government says tax-dodging is a serious problem in Zimbabwe, where, along with corruption, poor tax collections leave the state unable to pay for basic services and improve facilities like roads and airports.
Mugabe’s administration has recently proposed hiking toll fares by up to 100 percent, with the proposals branded “outrageous” and now facing a legal challenge in the High Court.
Mindful of voters’ concerns, Transport minister Obert Mpofu said tax revenues from the 22 toll gates around the country would be redirected to key areas. He said the the increase in toll fees had the backing of Cabinet which sought to “roll out its road rehabilitation and infrastructure development.”
The widening deficit has left limited room in the budget to bolster public investment at a time when the economy is struggling to take off.
The government hopes that companies refrain from passing on the tax increase to consumers, but public transport operators have already warned of an imminent increase in transport fares.
Retired Reserve Bank governor Gideon Gono said the tax hikes gave “evidence that economy was facing challenges.”
“Increase in Zinara tolls will cause a round of increases in transport costs,” Gono told the Daily News yesterday.
The government and central bank are struggling to contain deflation and a biting liquidity crunch.
Stephen Chan, a professor of world politics at the School of Oriental and African Studies at the University of London, told the Daily News yesterday that the Zimbabwe government urgently needs to widen and deepen its tax and revenue base.
“However, the current measures are insufficient for any long-term recovery and sustainability,” Chan said. “The country needs a prolonged surge in foreign direct investment, but that will only come if investors receive assurances about their investments. Even that, will not solve this current phase of Zimbabwe’s problems.
“What Zimbabwe actually needs is large-scale budgetary support and a standby budgetary programme, but the IMF would be reluctant to do that; the Western governments at present will not do that; and even the Chinese government has enough on its plate politically and economically to feel unable by itself to do that.”
John Robertson, an independent Zimbabwean economist, warned that the garnish of bank accounts of defaulting companies was unsustainable and detrimental to the national economy.
“The effect this is having on business is stopping companies from keeping money in banks,” Robertson warned.
“We are treating symptoms of the problem not the cause. The cause is that there is reduced economic activity. Government should increase levels of economic activity. Imposing higher tax rates on a shrinking economy will cause the situation to get worse. The shrinkage will also get worse if they take money from distressed companies.”
Robertson said the short-term measure would be to borrow money, but the rapid erosion of the country’s finances has cut Zimbabwe’s debt rating closer to junk status.
“We can simply find short term answers by borrowing money,” Robertson said. “But they have borrowed money before but they failed to pay back. We have spoilt our reputation for repaying debt and we are no longer eligible.”
Dewa Mavhinga, chairperson of pro-democracy group Crisis in Zimbabwe Coalition — a conglomeration of more than 350 civic society groups — and senior Africa researcher with
Human Rights Watch, said Zimbabweans rank among the most heavily taxed people globally, making government obsession with increasing taxes unsustainable.
“The major problem that the government of Zimbabwe has to tackle is not capacity to squeeze every cent out of a suffering population, but rather, to ensure proper priorities and prudent use of available resources in a transparent and accountable manner,” Mavhinga said.
“There are many areas of unnecessary expenditure which government should address including perennial government foreign trips with bloated delegations; leakage of resources in government ministries where thousands of ghost workers are reportedly employed; failure to monitor revenue from minerals leading in massive losses to government and a civil service that is too big by regional and global standards.
“The ruling regime must begin to ask itself tough questions like, does it need to employ such a large number in the army, CIO and police, for example. Some countries like Mauritius do not have a standing national army and are doing exceptionally well economically.”
He said Zimbabwe must learn fast to live within its means, and said the growth of government spending is what makes this tax burden necessary as the state governments has been indulging in a spending orgy.
The biting liquidity crunch has forced the government to adopt more rigorous methodologies in terms of revenue collection.
Piers Pigou, International Crisis Group’s Southern Africa project director, said whilst some actions by government may well be logical in the circumstances, including pushing for repayments on outstanding bills and taxes, other actions such as additional taxes and levies will add further pressure on an already pressurised and diminishing tax base.
“Certainly there is still room for additional tax on luxury goods that benefit an already opulent elite and not the majority and in so doing exacerbate the balance of payments deficit,” Pigou told the Daily News.
“In short, the situation is not sustainable and does not bode well for recovery options as operating costs soar. In the current circumstances, significant external budget support for government operating costs are unlikely to be forthcoming until core concerns around policy certainty, improved transparency, institutional integrity and concrete actions to deal with corrupt and criminal practices are addressed.”