Zimra raids a deadly blow to ailing firms

via Zimra raids a deadly blow to ailing firms – The Zimbabwe Independent April 25, 2014 by Kudzai Kuwaza

AS government coffers continue to dwindle, the Zimbabwe Revenue Authority (Zimra) has intensified its raids on companies, which analysts say could speed up company closures, dealing a further blow to the near comatose economy.

The recent moves by the authority to garnish a whopping US$45 million from diamond mining companies in the Chiadzwa, as well as to target the National Social Security Authority and several companies, most of which are struggling, has provided evidence that the authority is on a mission.

While Zimra would want to make the nation believe the ongoing exercise is a normal process, government sources have revealed that the revenue body was under pressure to increase collections in the face of an ever-increasing liquidity crunch.

The liquidity crisis, which has forced many companies to shut down or retrench workers, has also seen the government struggling to pay civil servants’ salaries and fund other programmes like the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset), which requires about US$27 billion to implement.

The intensive raids spurred by the desperate bid to raise funds by the cash-strapped government is now a thorn in the flesh of the struggling companies which are operating.

The government though, which gets its finances mostly from taxes, is caught up in a catch-22 situation, because company closures have also meant its tax base has dwindled over the years.

The Retrenchment Board has approved the shedding of more than 400 jobs for the first quarter of this year alone. The Zimbabwe Congress of Trade Unions revealed that 75 companies failed to open for business this year.

Statistics in the last three years make a depressing reading.

A July 2013 National Social Security Authority (Nssa) Harare Regional Employer Closures and Registrations Report for the period July 2011 to July 2013 shows 711 companies in Harare alone closed down, rendering 8 336 individuals jobless.

In addition, many companies continue to downsize, laying off workers and condemning them to a gloomy future.

Most of the retrenched workers are finding themselves in the informal sector where they are not taxed.

Major companies that have retrenched include platinum miners Zimplats and Unki, Bindura Nickel, Spar supermarkets, Dairibord, Cairns, Olivine Industries and PG Industries.

Zimra commissioner general Gershom Pasi recently expressed concern over the country’s dwindling revenues when he appeared before Parliament.

“We are headed for serious shrinkage of revenue unless something is done soon to increase revenue in the country,” Pasi said.

“It’s a miracle that we have surpassed our first quarter target … considering the current state of the economy. Things are not well out there.”

Last year, Zimra collected a total revenue of US$3,4 billion, 6% short of a US$3,6 billion target. government registered a budget deficit of US$16,8 million in February compared to a surplus of US$17,8 million in January, as revenue collections declined. This further demonstrates the country’s economic stagnation.

Economist John Robertson said the raiding of the company’s revenues could see the authority shooting itself in the foot.

“They are in danger of killing the businesses that could pay taxes later,” Robertson said. “Some of the claims by Zimra have been strongly disputed.”

He said although the authority had the right to garnish from companies’ accounts, this should not be abused.

Robertson said the widespread closure of businesses due to the imploding economy means there was not enough businesses to support the tax needed, particularly to pay the astronomical public sector wage bill.

He said it used to be one out of every 10 employees in the formal sector were employed by the public sector, but that has changed to one out of every three employees being employed by the government.
This, Robertson pointed out, has increased pressure on Zimra to intensify its raids on companies to find money to pay the public sector.

“The government needs to scale down its demand on taxation in recognition of the shrinking economy. The taxation is a reflection of the desperation to pay the public sector,” Robertson said.

An economic expert who requested anonymity, said it was ironic that Zimra had adopted such an aggressive stance in collecting what it was owed when they themselves were mired in debt.

The expert pointed out the companies’ requests to offset their debts to Zimra through the amounts owed to it by the authority had been turned down. This, he said, shows the authority’s inflexibility at a time the economy continues to implode.

“Zimra have to look at the decline in the economy. They are just taking money when we need to come to terms with our environment, which is not right.” he said.

He added that garnishing amounts owed, which include penalty and interest fees, could result in companies folding up, leading to the loss of more jobs.

Economic analyst, Godfrey Kanyenze said garnishing the accounts of companies was not the solution to inject the much-needed revenue into the fiscus.

“The problem is that the government is dealing with soft issues and not the real issues,” Kanyenze said.

“The key thing is to grow the economy.”

He said punitive tax measures by Zimra would not help solve the liquidity crunch crisis as Zimbabweans are already “among the most taxed in the world.”

“Coming down hard on the few remaining companies is not the way to go. It’s like squeezing life out of something that is already dying,” he said.

“What they should do is to sit down and facilitate a payment plan. The policeman approach will not help.”