Failure to meet targets reflection of economy

via Failure to meet targets reflection of economy | The Herald August 8, 2015

THE Zimbabwe Revenue Authority has been failing to meet successive revenue targets set by the Ministry of Finance and Economic Development, which has impacted on Government’s ability to function effectively. Assistant Business Editor Walter Muchinguri (WM) discussed the issue with zimra’s board chairperson Mrs Willia Bonyongwe (WB).

WM: zimra has been failing to meet set revenue targets for a while. What measures are being taken to reverse this trend?
WB: Thank you so much Walter for the question. Firstly before I respond on what measures are being taken to increase revenue collection, I think it would be proper to put the question into perspective, which is that any tax revenue collected is derived from the level of economic activity?

Other things remaining equal, the higher the Gross Domestic Product, the higher the tax collected. So the failure to meet targets by ZIMRA reflects the well being of our economy. As you know the Minister of Finance in his mid-term fiscal review, reduced the projected growth forecasts based on first half performance among other things.

There is a myriad of other reasons why zimra failed to meet the targets mostly to do with exogenous factors affecting the economy such as sanctions, the liquidity crunch and cost of production associated with the costly use of the US dollar.

As you know, despite the protestations that Zimbabwe is under targeted or restrictive measures, the reality of ZIDERA is that the country has been under economic sanctions for almost 15 years now. Those in business and Government will tell you of the debilitating impact of ZIDERA to industry, to commerce and to the country risk. This is compounded by the liquidity crunch, the unrealistic tenure and cost of lines of credit by the banking sector.

It would seem like people are not aware that we are using the US dollar. It is a very strong currency and the going interest rates are usurious. Nowhere in the developed world do you find such high rates and such huge margins for banks. The Reserve Bank is trying to resolve this but we are still a long way to go if we are to be competitive in the region.

Industry itself has also not adjusted to the use of the US dollar. The executive packages across the board are still way too high for the level of production and productivity.

I am glad that Reserve Bank Governor Dr John Mangudya has alluded to this issue before. Further, those who have been given the privilege to import capital goods must be monitored to ensure that they do not become too greedy, how does one put a mark-up of 100 to 300 percent on inputs. Even utilities are not to be out done.

I have always referred to the electricity tariffs especially for the agricultural sector. They are designed to make farmers fail. How does agriculture pay the highest electricity tariff in the economy and how on earth does something which is produced at 5-6 cents per kilowatt sold to farmers at a tariff of 14 cents per KW. This in a country whose economic blueprint anchors on food security and poverty alleviation among other things.

Agriculture is the backbone of this economy and it is because it did not do well that the whole economy slowed down and ZIMRA failed to meet its targets. What am I saying, I am saying there are serious structural issues which need to be tackled urgently to stimulate sustainable economic growth then we can begin to talk of increased taxes. Apart from the macroeconomic reasons for the failure to meet the targets. There are obviously some issues to do with the organisation itself. But, as you know, we have just been appointed as a board and are really in the process of finding our way. Therefore some of the questions you ask we will need time to sit with management and brainstorm to see how best we can solve these issues. But I will try to respond to those which I can

WM: What is zimra doing to increase tax collections?
WB: ZIMRA has been doing its best to introduce measures to increase the tax net. These include: post clearance audits; risk based domestic tax audits and investigations. I am sure there was an outcry on this one a few months ago but the thing is people need to pay their taxes.

In other countries, it’s such a serious offence, people go to jail for tax evasion. ZIMRA has also resorted to garnish orders as a last resort but as Finance Minister Patrick Chinamasa said, when he appointed us, it should never be to cripple company operations. The amnesty itself was a way to enhance compliance and also to give an opportunity for dialogue so that an amicable solution can be found.

zimra has also been escorting high risk transit goods. We have also introduced the use of scanners and canine unit for drugs, as well as increasing physical examination at the borders. We also continue to educate clients on abiding by the law and paying their taxes. All these measures will hopefully increase collection.

WM: During the first quarter of the year, the bulk of the revenue was realised from Value Added Tax but during the half year report it had slid to second place. What is being done to ensure that the revenue head attracts more collections?
WB: If you add both VAT (import and local) you will find that it still is the highest contributor to the taxes during both quarters. However, there was a slowdown in growth due to the macro-economic factors alluded to above.

Some of the strategies to increase VAT collection include a serious roll out programme on fiscalisation. Firstly, to deal with the gremlins affecting the current fiscalisation project and adding on other taxes on this. In this day and age of high technological advancement, it should not take long to do this efficiently. We are also mulling rolling out a completely new system. I believe this is a low hanging fruit.

WM: Most of the collections for the current figure came from PAYE, how sustainable is this given that most companies are laying off workers?
WB: Obviously as employees are laid off, PAYE would be adversely affected. But the laying off of workers is still very controversial. Government within the rule of law is yet to pronounce itself clearly on this.

Nonetheless, like I said before, there is need for a paradigm shift for both employers and employees. Employers need to think outside the box to see what else they can do in this environment. Kungosimbiririra zvatagara tichiita while foreigners are finding gaps and filling them profitably is rather foolish on our part.

Some of the new technologies are not that expensive. If people put their minds to it they might not lay off so many people. On the other hand, workers must know that they have to be productive. If one does not put in a full day’s work, how do they expect to be paid for it? Wages ought to be performance-related for both executives and other workers.

Having said this, there are a lot of employers who have not registered their employees for PAYE and these are the ones who would be in real trouble should they be discovered, and usually it’s a matter of time. ZIMRA relies on those who are law abiding to tell on those who are not (whistle blowing).

WM: Corruption involving zimra officials at most ports of entry into the country has been identified as a major factor affecting revenue collection and the influx of undeclared imports into the country. How is zimra dealing with this?
WB: Firstly Walter, corruption is indeed a cancer eating (into) the entire country and we need to collectively do something about it without delay.

The fact that ZIMRA officials are alleged to be corrupt would not surprise me because they are part of the same society and this would merely reflect the incidence and spread of the scourge in the populace

Actually, we have heard that there is connivance of ZIMRA officers and other people stationed at our border posts to facilitate the smuggling of goods into the country. However, ZIMRA as an organisation does not tolerate corruption if you look at our mission statement and our values.

The organisation has internal procedures to deal with such acts of misconduct. It is a matter of record that every year a number of officers are fired and even tried in court for such misconduct. It is a pity that financial crimes in Zimbabwe generally tend to have low penalties, and this therefore does not act as a deterrent. We need to address this issue across the board. In India for instance they have disgorgement, where one cannot enjoy the proceeds of crime. You lose the ill-gotten wealth and pay a fine on top and can even go to jail.

Even in South Africa the penalties are hefty. Having said, that it is the responsibility of the board to ensure that we eradicate corruption and I am sure that the board will indeed map out strategies to do so. The scanners I talked about, the truck tracking systems and fiscalisation will reduce the incidence of corruption. But this issue is also an issue for the public, it takes two to tango. For every corrupt ZIMRA official, there is a corrupt counterpart and we need the public to say NO to corruption.

When you pay a bribe, it does not go into State coffers and so the citizen is stealing from self, money which could bring the necessary medicine at hospitals or repair those roads or pay teachers etc. ZIMRA will indeed work with other stakeholders to educate the public on the ills of succumbing to or instigating corruption. So it is work in progress for both board and management. This is why we have a whistle blowing platform and the board will take particular interest in this and encourage people to use it.

WM: The economy is now largely informal. What is zimra doing to tap into this market?
WB: This would be a correct statement if there was a consensus on magnitude of the informal sector. There is a school of thought which says it’s as big as $6 billion but this is often disputed by others. So the jury is still out on this one. But the thing is as long as the informal sector is growing, VAT will net them especially when fiscalisation is rolled out in full force.

WM: You indicated that collections for customs duty was affected by suppressing instruments which enable the importation of goods under rebates, trade agreements and concessions. What is being done to ensure that this particular revenue head contributes more to the overall collections?
WB: I think this is being addressed through post clearance audit, risk based audits and truck tracking devices as well as other legislative and fiscal reforms being developed to deal with rules of origin e.t.c but still in their infancy.

WM: zimra Commissioner General, (Mr Gershom Pasi) recently said the levels of presumptive taxes, given the current set up, are a bit on the high side and they need to be reduced to encourage more people to comply. Has zimra taken this proposal forward? If so, what has been the response?
WB: Consultations with various stakeholders are ongoing with a view of coming up with equitable amounts which will encourage voluntary compliance.

WM: zimra granted companies and individuals tax amnesty up to June and extended this to September this year. How many companies owned up by the June deadline and how much do they owe?
WB: The information concerning the number of companies who owned up and the amounts owed is still being analysed.

WM: What type of action will zimra take on those companies that did not own up?
WB: In extending the period, the minister considered the fact that companies are going through a hard time and that some were very suspicious of the amnesty’s motives. But the statement he gave the day he appointed us gave an insight into how he thinks. He asked us to be firm but fair and I think people need to take advantage of the extension because after that the law would simply take its course. The Revenue Act prescribes what will happen there, namely defaulters will be liable to penalties, interest, prosecution and publication of any tax offenders.

WM: zimra has become unpopular with companies due to garnishees. How successful has this been and what is the relationship now with corporates given this confrontational approach that zimra took?
WB: As for ZIMRA being unpopular, well, I have to see a popular tax authority anywhere in the world. It’s not like most people don’t like to pay their taxes. Generally, some people try to avoid or evade and naturally because the taxman has a mandate to collect revenue on behalf of Government, when they catch you they might not be very nice. However, the law provides for a process before they can garnishee. It is always better to approach the taxman and discuss your difficulties than to wait to be caught. Having said this, the minister has talked to both the board and management to ensure that we do not cripple businesses. But still the economic units have the obligation to pay their taxes and to approach the taxman if they have problems.

That is the difference between a tax evader and someone going through difficulties. And the two groups are treated differently. This is why some have payment plans and others are garnished. In terms of the conduct of staff, there could be excesses and management will always deal with that if such cases are brought to their attention.

WM: Lastly, you are heading a new Zimra board, what do you hope to achieve during your tenure?
WB: Our mandate is provided for in the Zimbabwe Revenue Act, that is where our powers and functions are specified. As the board we work to the best of our ability to ensure we collect revenues efficiently and effectively and lawfully. I expect that at the end of our tenure, we would leave a robust organisation which is fully automated and is able to provide real-time information to Government at the press of a button.

I also hope that we should be able to broaden the net of tax payers to an extent that the nation is able to reduce the tax rate across the board.

In terms of the Gross Domestic Product, the mining sector is very sizeable, but its contribution to taxation is not proportionate. Our mineral resources are finite, and once they are gone they are gone and I believe there is need for a tax system which benefits both parties fairly.

I understand that there is already dialogue in this regard and it would give me great pleasure if during our tenure we can be able to advise Government and negotiate with the relevant parties on this issue. I think it is sad that Africa keeps losing all these minerals and gets very little in return.

COMMENTS

WORDPRESS: 1
  • comment-avatar
    mambo 6 years ago

    So if their mandate is to act under the Zimbabwe Revenue Act where their powers and functions are specified, why is this woman parroting the party line and yet again blaming others on non existent sanctions. The Zimbabwe economy, Madam, is in a complete mess as a result of 35 years of failed ZANU (PF) policies which include wiping out the country’s own currency. Look no further than a mirror.