ZIMBABWE needs a monitoring and control mechanism to bring tax concession beneficiaries to account in order to avoid revenue losses from possible abuse of such facilities and ensure maximum benefit to the economy.
According to Zimra’s third quarter record, an estimated $1,7 billion tax expenditure was incurred, which refers to revenue that should have come in but was given away in tax concessions. This covers tax heads such as Customs, VAT, Pay as You Earn and Income Tax.
In its 2020 National Budget Statement and years before Government has granted numerous fiscal incentives in the form subsidies and tax incentives in a bid to attract or promote growth of certain industries, as well as cushion individual citizens.
In the 2020 budget statement Government gave a number of rebates of duty to key productive sectors and reduced tax rates including VAT (15%to14,5%), Corporate Tax (25%to24%), increased 2c tax bracket from $20 to $100, $500 per person tax credit for youth employment, tax free salary threshold increase and royalty reduction for selected mines among others.
While these are intended for a positive end, Zimbabwe Revenue Authority (Zimra) commissioner general, Ms Faith Mazani, has said in the absence of control mechanisms some beneficiaries tend to abuse such a reprieve and prejudice the fiscus of potential revenue.
“We do have them (tax concessions) in quite a number of sectors and areas given are usually when we want to attract employment, which is a case that Zimbabwe needs right now. When you want to create employment and attract capital including capital intensive areas like mining, manufacturing, or technology, you know our industries have gone down, and we need to rejuvenate,” she said in an interview with Business Chronicle.
“So, yes there may be justification for that but the problem is we are then taken advantage of because we don’t have those control mechanisms. And companies, if given tax holidays, in some cases for a period of 5 to 10 years, they come and do whatever they want to do and don’t pay the tax.
“They pay the minimal, and after the 5 to 10 years some companies then either change, that is, if they still want to do business or close the company and start another one.”
Ms Mazani said strong policy provisions were needed to ensure achievement of tax holiday objectives and that beneficiaries do not prejudice the fiscus of the much-needed revenue. This includes tracking company directors in the event they evade tax by closing and opening new firms at the end of tax holiday tenure.
“So, we need to put those controls and for me what is critical is that if we are saying a company is coming to provide employment, we need to be able to have targets that we then monitor and follow up. But those mechanisms are not there,” she said.
“If we are giving away $1,7 billion what could we have done with that money and what has come back from that give away. So, we need that balance in terms of what do we get from these companies that benefit from concessions.
“That for me is what is critical and right now what we need really is to say what are we going to get back and how do we then make sure that those companies are accountable for what they are getting.”
The Zimra boss said the challenge often comes when such tax concession contracts are signed by ministries without oversight from the Ministry of Finance, which is concerned about the money being lost to fiscus.
“So, we need this centralised so that we have control. In many countries where those concessions are given, they are signed by the minister responsible for finance and not by industry or other structure but finance minister,” she said.
“So, the Minister of Finance, Prof Mthuli Ncube, pronounced quite a number of concessions, particularly for tourism and mining and yes, they may be deserving sectors but we need those structures and I am happy that he did mention.”
Ms Mazani said Zimra will continue to engage and advise Government on the matter to ensure the country generates adequate revenue for its operations. “It’s not so much that I’m saying we should not give concessions but we need accountability and monitoring.”
Tax compliance remains one of the major constraints in domestic resource generation and to date the country is owed more than $4 billion in unpaid tax by individuals and corporates. –chroncile.co.zw