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Prosper Ndlovu, Business Editor

A LOW tax-rate regime is ideal especially for direct taxes like Personal Income Tax by those in formal employment as it promotes economic growth by enhancing aggregate demand and collection of Value Added Tax (VAT) through increased consumption of goods and services, Zimbabwe Revenue Authority (Zimra) commissioner general, Ms Regina Chinamasa, has said.

As the Government prepares to draft the National Budget Statement for 2023, industry and commerce leaders have urged the Treasury to consider easing the tax burden on individuals and businesses to reduce the cost of doing business.

Specifically, established corporates and labour bodies have expressed concern over the two cents tax on all electronic transactions, which they view as a double burden as they already incur other direct taxes. In Zimbabwe, the Individual Tax rate ranges between 20-40 percent of total earnings depending income level.

Stressing the need to incentivise voluntary tax compliance as well as boosting Domestic Resource Mobilisation (DRM) to steer sustainable economic growth, Ms Chinamasa told delegates during a recent tourism taxation meeting in Bulawayo, that increasing disposable incomes and levelling the playing field in taxation was vital at a time when Zimbabwe is driving towards attaining an upper middle-income economic status by 2030. 

While the Government is focused on generating adequate financial resources to support national development programmes, Ms Chinamasa warned against the pitfalls of higher taxation, which tends to fuel tax evasion and other illicit activities by businesses and individuals.

“High tax rates encourage tax evasion and other harmful tax practices. Our considered view and appeal to Government is to envisage a low tax-rate regime, especially in direct taxes like Personal Income Tax paid by those in formal employment,” said the Zimra boss. 

“This removes the incentive to evade, increases the disposable incomes and thereby stimulating aggregate demand in the economy. We see this aggregate demand not only spurring economic activity but also enhancing our VAT collections through increased consumption of goods and services.”

Ms Chinamasa said it was common knowledge the world over that complex tax legislation, tax codes, high tax rates and high compliance burdens were powerful incentives for informalisation in any economy. 

Given the structural transformation of the country’s economy in recent years, which has seen proliferation of more informal economy players, economists have also called on policymakers to fine-tune the taxation legal framework for sustainability in a manner that incentivises harnessing of revenue from the informal sector, in particular.

“We believe that leveling the playing field encourages competitiveness in the economy and this includes doing away with Omnibus Tax Incentives, which only serve to shift the profits to foreign jurisdictions, which erode the tax base locally, and promotes rent-seeking behaviours from different industry players,” Ms Chinamasa added.

For purposes of fostering cooperative compliance, she said Zimra was already working on a number of initiatives to encourage voluntary compliance. 

This includes setting up of information kiosks where clients can go and get assistance on how they can comply using electronic-services platforms. 

This has resulted in the launch of a pilot project at Kurima House in Harare while the process of setting up similar information kiosks across all major inland stations is underway.

Ms Chinamasa said the Cooperative Compliance programme concept has been popularised by the Organisation for Economic Co-operation and Development (OECD) countries and is being piloted in some African countries like Ghana.

“The emphasis is on creating and nurturing a relationship based on trust and cooperation between the revenue authority and our clients. 

“And of course, the Co­oper­at­ive Com­pli­ance model will minimise conflict between tax authorities and busi­nesses by establishing a relationship based on transparency, justified trust and behavioural change in terms of the nature of tax avoidance/planning undertaken,” she said. 

“Cooperative compliance ensures a better understanding of the business through increased commercial awareness of tax officials, and regular updates on current significant events affecting the taxpayer among other issues.”

Ms Chinamasa said Zimra was also driving at building and fostering partnerships with its clients including the tourism industry                          and other important stakeholders as this is crucial in the achievement of the authority’s mandate.

“We will collectively endeavour to build and sustain linkages and collaborations with the tourism sector, to enhance synergies among players in revenue generation and trade facilitation,” she said.

“I, therefore, implore you to partner with us in presenting proposals to Government that will ensure improved compliance and sustainable domestic revenue for Government.”