Taxing vendors: Zimra’s desperate recourse

via Taxing vendors: Zimra’s desperate recourse – The Zimbabwe Independent February 13, 2015

PLANS by the Zimbabwe Revenue Authority (Zimra) to tax the teeming ranks of vendors forced into the informal sector by the country’s obdurate economic crisis shows high levels of desperation for the cash-strapped government whose revenue base continues to shrink as more companies succumb to recession.

The move to tax vendors comes at a time Zimra is increasingly struggling to meet its revenue collection targets, with government no longer able to guarantee public service salary dates. Government last week said the payment of annual bonuses to the civil service had worsened it precarious financial position.

Revenue net collections for 2014 stood at US$3,6 billion against a target of US$3,82 billion, a negative variance of 6%.

Zimra’s declining revenue collection was particularly poor in the fourth quarter of 2014, and the trend is expected to continue in 2015 forcing the authority to take drastic measures in its quest to sustain government operations, including company raids.

Zimra has introduced a tax amnesty to entice its clients to regularise their tax affairs. The amnesty is in respect of any non-compliance which occurred during the period beginning February 1 2009 to September 30 2014.

It has extended the payment period from six months to 15 months and gives 5% discount on early payments by clients, an indication that the taxman is battling with a shrinking revenue base.

It is estimated that between US$3 billion and US$7 billion is circulating in the burgeoning informal sector which currently does not pay any form of tax, and has been described by government as “the new economy”.

Economist John Robertson said it was improper to yoke vendors with tax since most of them were struggling to earn a living with unemployment soaring above 85%.

“It is a very difficult situation because these people who government intends to tax do not have a choice. If they had one, they would rather be formally employed,” he said.

“If Zimra reacts to the symptoms of the (economic) problems (which is vending), it then also becomes a problem. These people making a living out of vending have a problem which can be solved if they find better jobs. But they can’t do that at the moment as factory jobs have become scarce, throwing many people on the streets.”

Another Economist, Kipson Gundani weighed in saying although it was every citizen’s responsibility to pay taxes, levying vendors would impoverish them further as they were barely making enough to survive.
“There are many issues here. I believe that every citizen should contribute to the national fiscus, but these people are earning marginal income,” he said.

“Any form of tax will worsen their plight. Income levels of our country are going down and it is proper to be lenient with them. If you look at the issue of vendors mushrooming everywhere in the country, it is an indication of poverty.”

Gundani advised Zimra to do its homework before introducing tax to avoid twin problems of overburdening taxpayers, as well as further ruining its fiscal base.

“Before you come up with any form of tax, you need proper data on how much they (vendors) are earning to determine the tax rate. It can be costly to implement. There is need for a thorough cost-benefit analysis,” he said.

“They (Zimra) need to zero in on cost of compliance and registration systems because vendors are scattered everywhere.”

Government said the taxing of vendors would be implemented along the lines of South Korea’s small to medium enterprises (SMES) support policies.

However, South Korea facilitates financing and helps entrepreneurs start businesses through support policies that include start-up financing assistance. South Korea’s Financial Supervisory Service (FSS) report released last year revealed government had launched several programmes to support struggling SMEs, including a “fast-track” programme to simplify loan applications.

The FSS said it would encourage banks to extent the programme that would offer guidance to SMEs on governance and competitiveness.

In contrast, Zimbabwean vendors lack access to bank loans, as currently the country is in the throes of a liquidity crunch, partly blamed on banks’ non-performing loan books that have resulted in financial institutions’ unwillingness to lend, especially in cases where there is no collateral.

Tax expert Rameck Masaire said direct taxation of vendors was never an easy proposition, especially in the current environment where regulation of vendors is non–existent.

“Vendors are largely of no fixed abode, have no formalised way of doing business, thus their activities would be difficult to monitor,” he said.

“Zimra has to evaluate the existing framework, identify areas of poor performance and only then come up with new measures with a view to determine the actual situation on the ground.

“After evaluation, they should come up with new measures, otherwise they risk coming up with measures that will meet insurmountable challenges.”

Presenting his 2015 budget last November, Finance minister Patrick Chinamasa revealed US$3,7 billion would be spent on recurrent expenditures such as labour costs, meaning a paltry amount would remain for crucial development projects and service delivery.

The budget was in December revised downwards to US$3,6 billion from US$4,1 billion. Government is currently mooting retrenchment to ease its financial burden, but that too has its problems, not least of which is how to raise funds to pay retrenches. Presently, government has allowed some workers who have reached retirement age to continue working as it cannot raise their retrenchment packages.

Takunda Mugaga, an economist, said it would be a travesty of justice to tax the disadvantaged without plugging rampant corruption at the country’s border posts by Zimra officials.

“There are very few vendors who have economic weight. They are poor and do not have money. It is a regressive to tax them because it’s targeting the poor while those who are connected trade without paying duties. We are losing a lot of revenue on the border posts due to corrupt Zimra officials,” Mugaga said.

Airtime vendor Masimba Nyangoro said he was not aware of the impending tax, but said he would quit if it became unsustainable.
“I will have to see how much they want from us. I will quit the trade and do something else if the tax burden is high.”

Masaire said it was burdensome to tax vendors because they are already contributing to the fiscus through value-added tax (VAT) and excise duty.

“Any new measures must be simple and not costly for the taxpayer to comply. The vendors would have to pay their tax through the recognised channel, and currently these are already contributing to the fiscus through VAT on their consumption of goods and services,” he said.

“Airtime for example is subject to both VAT and excise duty and these are progressive taxes that recognise and already classify the poor from the rich. The more airtime you consume, the more tax you pay.”

He said to create fiscal inclusiveness, Zimra has to identify projects from which the vendor realises income and then use that as a platform to raise a vendors levy based on products that are widely sought after by the vendors.

While government continues to mull the best way to tax vendors, what is already clear is that the unpopular move would be very difficult to implement.

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