Scrap tax incentives, Zim urged

HARARE - Lobby group African Forum and Network on Debt Development (Afrodad) says government must scrap a coterie of tax incentives on investors to boost its depleting coffers.

In its draft research report on the cost of investment incentives in Zimbabwe released yesterday, Afrodad said the exemptions being granted to investors were hurting the country economically.

“Based on the Zimbabwe Revenue Authority (Zimra) third quarter performance report, total revenue forgone in respect of incentives amounts to $233,1 million,” said one of the independent consultants who worked on the paper, Rongai Chizema.

“This is two percent of the GDP, 6,5 percent of the total revenue for 2015, and 98 percent of the projected capital expenditure budget for 2015,” he added.

Zimbabwe offers various tax incentives, including the setting up of special economic zones, to attract foreign investment to revive the country’s ailing economy.

Chizema noted that policy clarity and consistence was key in luring Foreign Direct Investment (FDI) into the country and not necessarily the tax exemptions.

“Government and revenue collection agencies should undertake cost benefit analysis before taking a position on granting tax incentives.

“The countries that have been successful in attracting foreign investors have not offered large tax incentives. Investment climate issues are key to unlocking FDI, not bribery of investors,” he said.

The consultant said government must not be swayed by regional peers into “harmful” exemptions.

“At the end of the day even if we offer huge incentives when our policies are a mess, we will not get far. Government should stay free from indulging in harmful tax competition with regional peers, tax regimes should be harmonised,” Chizema said.

While the Zimbabwe Investment Authority (Zia) chairman Nigel Chanakira is on record saying the country processed investment proposals worth $3 billion in the first nine month of the year, analysts say not all these translate into actual investment.

The United Nations Conference on Trade and Development (Unctad) latest report shows that FDI into the country surged 36 percent to $545 million in 2014 from $400 million registered in 2013.

Chizema said government had to weigh if the investment flows into the country from foreign investors were worth the pressure being exerted on the fiscus.

He said tax incentives work in the context of effective governance, with the type of political regime influencing tax incentive policy, as in countries with weaker governance without political incentive the incentives only added a burden and led to overreliance on other tax heads.

This comes as Zimra commissioner general Gershom Pasi recently said Zimbabwe should think twice before granting foreign companies tax incentives because this might benefit the countries of origin of the companies rather than Zimbabwe.

Comments (1)

i believe govt is correct - we cannot continue to be different from regional peers - govt is looking at long term job creation not transitory taxation benefits which discourage FDI in the first place.

donga - 10 December 2015

Post a comment

Readers are kindly requested to refrain from using abusive, vulgar, racist, tribalistic, sexist, discriminatory and hurtful language when posting their comments on the Daily News website.
Those who transgress this civilised etiquette will be barred from contributing to our online discussions.
- Editor

Your email address will not be shared.