Zimra warns of company closures

via Zimra warns of company closures January 24, 2014 by Bernard Mpofu NewsDay

THE Zimbabwe Revenue Authority (Zimra) has warned of more company closures, scaling down of operations and a subsequent decline in company tax as Treasury continues to operate under tight fiscal space, the authority has announced.

Treasury last year missed its revenue target for the year ending December 2013 by 8% on the back of underperformance of diamond revenue and massive company closures amid a relentless push by the civil service to increase the wage bill.

Last December, Finance minister Patrick Chinamasa presented a $4,1 billion budget.

According to year-end figures released by the tax collector yesterday, total net-of-refunds collections for the year 2013 amounted to $3,43 billion against a target of $3,64 billion resulting in a negative variance of 6%.

The year 2013 saw a number of companies scaling down operations and others closing shop resulting in government collecting $401 million in company tax from a target of $457,4 million.

During the year under review, capacity utilisation for the manufacturing sector dropped to 39,6% from 44,6% in 2012.

“The revenue head (company tax) is expected to drop significantly in 2014 if the current environment persists as more companies are likely to scale down operations,” Zimra chairman Sternford Moyo said.

He said the repeal of the deductibility of mineral royalties as an allowable deduction would, however, have a slight positive impact on corporate tax collected.

The fourth quarter of 2013, according to Moyo, brought in net collections of $877,6 million against the Finance ministry’s target of $1,1 billion resulting in a negative variance of 18%.

“The year 2013 was characterised by many challenges that created a very difficult environment for businesses and consequently for revenue collection.

Challenges such as the liquidity crunch coupled with low industrial capacity utilisation, among others, saw the tax base shrinking,” Moyo said.

The figures come at a time the civil service has reportedly struck a salary increment deal with government, a development that will limit fiscal space.
Already, the civil service wage bill accounts for 75% of total revenue, crowding out key capital projects.

“Mining royalties amounted to $133,7 million against a target of $245 million resulting in a negative variance of 45%. The performance of the revenue head was due to the challenges that the government of Zimbabwe faced in auctioning diamonds on the international market during the greater part of 2013,” Moyo said.

He added that tax on domestic dividend and interest was this year not expected to contribute much due to the slowdown in economic growth.

Turning to tobacco levy, cumulative collections amounted to $9,9 million against a target of $10 million.

“The performance of the tobacco levy can be attributed to the drop in prices which were encountered during the tobacco selling season,” Moyo said.