Continually raising taxes counter productivity

The government is evidently desperate to raise revenues, but introducing a range of taxes is not the way to go about it.

Source: Continually raising taxes counter productivity – NewsDay Zimbabwe February 3, 2017

Comment: NewsDay Editor

Statutory Instrument 20 of 2017 introduced value-added tax (VAT) on meat products, cereals, potatoes, fish and even chicken offals, and with retailers passing on the cost to consumers, this will make these foodstuffs more expensive and out of the reach of many people.

While the government may think this will generate more revenue for it, the reality is people will find substitutes for some of these foods.

For example, at the height of the 2008 economic meltdown, many Zimbabweans resorted to soya meat known as chunks, as chicken and beef were out of their reach.

In essence, the government may be shooting itself in the foot, as this may reduce its capacity to collect money as consumers will stay away or reduce the amount they spend on the goods whose VAT has been increased.

What the government should be doing is to promote spending and ensuring that people have more disposable income, rather than making things even tighter.

Instead, as history has shown in other countries, the government could consider reducing VAT and spur spending and this way it will collect more revenue, as consumers will spend more and will have more disposable income and are more likely to save, which is beneficial to the economy.

This may sound simplistic, but in many countries it has been known to work. If the authorities are sceptical, then they can start with a temporary reduction, say, for six months, and then measure what impact this has on government revenue.

Zimbabweans are already overburdened by too many taxes and this new levy will only serve to make their lives worse.

It is imperative that the government does not view raising taxes as the only way it can increase revenues, because levies can only be increased to a certain point before they become impossible to pay for the majority.

The government must also be cognisant that most people in the private sector have either lost their jobs or had salary cuts, meaning their ability to pay is somewhat lessened and they have to employ coping mechanisms, which include substitutes for some goods they once considered basic.

It is also imperative that the government realises the shrinking economic environment, which means many people are already up to their necks in debt or are basically living from hand to mouth and an increase in any tax is likely to worsen their plight.

The government needs to empathetic to the needs of citizens, they have suffered enough and raising taxes is worsening their situation.