Home » Business » Tax Arrears Hit U.S$1 Billion

THE amount of tax outstanding to government has reached US$1 billion, highlighting the escalating crisis in the country characterised by company closures and job losses, the Financial Gazette can report.At US$1 billion, the figure is double the outstanding tax amount for the period 2009 to 2012, which we previously reported at US$500 million.

This partly explains the precarious position enveloping government finances, which has not been helped by the decision to award civil servants a salary increase in 2013 and a 13th cheque for the 2014 calender year.

Since then, the payment dates for government workers’ salaries have become more of a moving target, dependent on the availability of funding from the Zimbabwe Revenue Authority (ZIMRA).

ZIMRA officials confirmed this week that the taxman is now owed a whooping US$1 billion in taxes.

“… the figure is now over a billion dollars. That is reality,” said George Chiradza, a ZIMRA commissioner responsible for domestic taxes.

He was addressing a tax conference organised by auditors, EY.

Apparently, ZIMRA embarked on a blitz to force companies to pay outstanding taxes after government finances deteriorated to the point of almost grounding State operations to a halt.

The move resulted in many companies having their bank accounts garnished, and several are reported to have closed as a result.

But Chiradza insisted ZIMRA was very sensitive to the plight of industry and, in fact, said they were very lenient in dealing with most cases of tax evasion and default.

“If we did not (become lenient), a number of companies would have folded. We tried to help each other for economic development. We need to build strategic relationships with business, with zero tolerance to corruption, because it is robbing the nation and we need to put a rein on that,” said the ZIMRA boss.

In her audit report for the period 2009 to 2014, the auditor-general, Mildred Chasi, pointed out that outstanding revenue amounted to US$508 224 725 as at December 31, 2013, with over US$240 million representing debts outstanding as far back as 2009.

She indicated that there was a greater risk that the US$240 million “may not be recovered due to the lapse of time” and aised Treasury to work together with ZIMRA to address the issue of companies that had ceased operations but still owed government taxes.

Chiradza said the taxman had enough capacity to monitor and collect all revenues due to Treasury at any given time, adding that in the case of the mounting defaults, the authority was aware that a heavy handed approach to defaulters would plunge frail firms into worse circumstances.

Last week, the National Association of Non Governmental Organisations (NANGO) warned that the country risked plunging into an unprecedented crisis worse than the hyperinflationary era that ended with dollarisation in 2009 if bold steps were not taken to expand fiscal space. However, there has been a public outcry against ZIMRA’s hostile enforcement against defaults in Value Added Tax, Corporate Tax and a string of fees and charges that has left hundreds of firms belly up, or tottering on the brink.

Zimbabwe’s economy, which many had hoped to improve following dollarisation in 2009, has hit a bad patch and is slowly drifting into an unprecedented recession.

Poor revenue streams into government coffers have meant that Treasury has been unable to intervene in ameliorating the plight of the country’s citizens, and is currently grappling with paying civil servants salaries against the background of dwindling resources.

Official statistics suggest that over 9,8 million of the country’s 13 million people now live under US$200 per month.

Over nine million Zimbabweans had no access to piped running water last year, in contrast to only 3,7 million people with access to piped running water, according to a government-commissioned research by South Africa-based researchers, FinMark.

The research, released last week, indicated that in 2011, 4,5 million people had access to clean piped water.

The number of Zimbabweans living on the margins was increasing at an alarming rate, with the percentage of people who have had to skip meals due to lack of cash shooting to 44 percent in 2014, from 29 percent four years ago.

About 37 percent have gone without treatment or medicine because of lack of money, compared with 20 percent in 2011.

Apart from the crumbling health delivery system, government has been battling to pacify its bloated 553 000 civil service, which has expanded by about 100 percent since 2009, and is chewing over 80 percent of fiscal revenues.

This has crowded out revenues for growth stimulating capital projects.

The economic crisis has shocked a country that expected it to be arrested by the introduction of a multicurrency system six years ago.

Instead, Zimbabwe has since been buffeted by an avalanche of more pressing structural shocks, including debts of over US$750 million owed to banks, which cash-strapped debtors are failing to service, as well as a brutal illicit movement of funds, estimated by the Zimbabwe Economic Policy Research Unity at US$2,5 billion per annum.

This illicit movement of funds, which could be rampant in diamond mines where transparency has been compromised by a culture of secrecy, has raised fears of an escalation of hardships.

“I believe that we have now realised that our country is plunging into a fiscal quagmire,” said Paul Juru, chairperson at NANGO.

“If the economic challenges which we are facing are left unattended, we might easily go back to the levels of the lost decade ‘1998-2008’,” he told the fiscal policy dialogue.

“Zimbabwe is under a fiscal space deficiency vicious cycle there is therefore need for all stakeholders to work together and come up with solutions to break this cycle. We need to turn to each other right now, and not against each other,” said Juru.

He proposed a raft of new taxes to expand shrinking fiscal space.

But Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, said Zimbabwe must tread with caution.

“Those (new taxes) might not be sustainable because that might damage the economy,” Mangudya said.

“We are on the edge. We have to make a decision to fall or stand. We over borrowed after dollarisation, the pricing regime was too high. We all made mistakes. We are in a catch 22 situation but someone must break the vicious cycle,” said the RBZ boss, who warned that the tax regime in Zimbabwe was hostile to the public and the private sector.

“Let’s exploit the minerals to the best of our ability, transparently because there is a limit to which you can continue to tax people. I believe our marginal tax is too high. If we continue to increase taxes investors will move away. With the killing of the goose that lays the eggs, what do we do?” Mangudya asked, rhetorically.

ZIMRA’s commissioner general, Gershem Pasi, admitted over a month ago that the trading environment had deteriorated, with nearly all companies struggling to stay afloat due to depressed demand and the inability by cash-strapped customers to pay for goods and services on time.

This has resulted in an unhealthy working capital situation that had seen most companies lagging behind with payments for their raw materials and other inputs, salaries, medical aid and pension contributions as well as statutory payments such as taxes.

But the pressure on government’s tax collection agency is unrelenting.

Government has failed to trim its bloated waistline and adjust its priorities to suit the tough economic climate.

Its expenditure far exceeds what it has been generating in terms of revenue from penalties, taxes, grants, donations and foreign direct investments hence sustaining its appetite for cash is presenting serious headaches for ZIMRA.

The government’s revenue collection base has been shrinking on the back of the de-industrialisation that has scaled up retrenchments, especially in the key manufacturing sector, where capacity utilisation declined to about 33 percent in 2014, from about 44 percent in 2012.

This week, Pasi launched a broadside on government profligacy, warning that as long as this propensity for unnecessary expenditure was not stopped, the country was headed for doom and gloom.

The executive had expanded the legislature during a time when revenues were declining, while new authorities and state firms, many times duplications of existing institutions, were sprouting, he said.

“Directors of these would require top (of the) range vehicles and other expenditure, including high salary perks,” Pasi said and asked where will the resources come from?

“The truth is we are going deeper and deeper into the hole unless we take drastic measures,” he said.

“We had a new Constitution. It is a very expensive Constitution. Look what happened in terms of the expansion of the legislature. At the end of the day we must pay them. Once you elect them into Parliament it means you have to pay them. There is a multiplicity of non productive entities. We took over the running of the old bridge at BeitBridge but we hired people at an extra cost. This is something that could be done by ZIMRA at no extra cost. We want to create a ports authority. Who will fund them? Government? Is it necessary? We have created too many independent funds. Why do we create unnecessary funds outside central Treasury? I raised this in Parliament and I was attacked left right and centre,” said Pasi.

“We pegged wages and salaries basing on artificial levels at dollarisation. We have never needed a social contract than now. Let’s cut the salaries, let’s cut prices. We need a social contract than ever. We need to review the way we do our budget. We must start with what is available, and then we must cut our cloth based on what is there. We can agree that whoever is in government, whatever revenue comes a certain percentage goes towards capital formation,” he said.

Source : Financial Gazette

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