Economic crisis hits revenue flows

Flag of Zimbabwe sticking in a variety of american banknotes.(series)

Economic turmoil characterised by endless company closures and rising job losses has hit state revenue collection, triggering panic in government.

By Taurai Mangudhla

Pressing demands such as civil service salaries and other recurrent expenditure that gobbled about 97% of the 2016 cash budget remain a priority, while other obligations such as the make-or-break 2018 general elections are also piling pressure on the fiscus.

The need for government to deliver results by way of turning around the economy has never been greater and is so urgent that opportunities to deliver good news, however manipulated, will not be missed.

Last week, state revenue collector, the Zimbabwe Revenue Authority (Zimra), announced it had surpassed its revenue collection targets by 6%, apparently giving the impression of a thriving economy and successful revenue collection strategies.

“Zimra is pleased to advise the nation that the revenue target for the first quarter of 2017 — which stood at US$812 million —has been surpassed, courtesy of your tax compliance and support,” Zimra said in a statement, ahead of a detailed quarterly report on performance of respective revenue heads to be published in due course.

“Gross revenue collections for the first quarter amounted to US$862,47 million and were 6% above target. Net collections after refunds were 2% above target and amounted to US$826,63 million,” added Zimra.

“Once again, thank you Zimbabwe for demonstrating patriotism through voluntarily paying taxes, customs duties and excise duties. Zimra is also pleased that measures to enhance operational efficiency and effectiveness, to boost revenue collections, and to safeguard revenue are bearing fruits.”

The statement, which paints a picture of improved revenue collections, is created yet the reality is to the contrary.

Zimra reduced its targets for the first quarter of the year to US$$12,9 million from US$861,8 million in 2016 and US$850 million in 2015.

Actual collections for 2016 were US$724,9 million in the first quarter while US$803,2 million and US$834,6 million was collected in the same period in 2015 and 2014 respectively.

Compared to the last quarter of 2016, revenue collection tumbled by as much as US$31,4 million.

However, the first quarter of the year has traditionally collected the least amount of revenues each year, based on Zimra results from 2014 to 2016. It remains a question whether or not the pattern will continue this year.

Annual revenue collections tumbled from a net of US$3,4 billion in 2013 to a gross of US$3,25 billion in 2016.

Zimra collected gross revenues of US$3,5 billion in 2015 and US$3,8 billion in 2014.

The declining revenue collections between 2014 and 2016 also saw Zimra reduce its annual targets from US$3,8 billion in 2014 to US$3,7 billion in 2015 and US$3,6 billion in 2016.

Independent economist John Robertson said the growth in revenue collection in the current quarter compared to the same period in 2016 and preceding years reflects nothing more than fruits of an aggressive tax collection strategy characterised by threats and garnish orders.

“Do not read too much into this, it only means the tax collection exercise has been intensified. Government has put more effort in collecting from individuals and corporates that have been in default with more threats, garnish orders and intimidation,” said Robertson.

He said Zimra deliberately set its targets low, based on realistic projections in order to paint a picture of success.

“Sometimes they may set their targets low so that they beat them and boast about beating their targets,” he said, adding that annual collections have been slowing down since 2014.

“This is only the first quarter and the second and third quarters are more important, but I doubt they are able to sustain this throughout there year because of cash shortages which have left business struggling to survive and unable to retool or import raw materials.”

Economist Davison Gomo said Zimra’s results are a reflection of its increased collection efforts.

Gomo said Zimra continues to operate under an economy that is failing to take off sustainably. He said although capacity utilisation was reported as going up albeit at a slow pace, it is not sufficient to bring new players into the economy that result in some kind of an expanded tax base.

“Therefore, in the absence of the economy creating new players, Zimra is doing everything it can to mop up whatever is outstanding from the few taxpayers both corporate and individuals. The reported increase by a factor of 19% is great and good news but it must be understood that it is a reflection of the tax collector’s enhanced and vigorous methods of collecting tax,” Gomo said.

He said unless the economy takes a positive growth trajectory, Zimbabwe may soon reach a point where there is zero growth in tax revenues no matter how efficient Zimra gets.

“While the achievement remains commendable, the authorities must ceaselessly look at sustainable policy options that address the perennial structural problems that have ruthlessly kept the economy a prisoner for decades now. We can no longer just wish these problems away. Economic growth challenges must just be what all of us focus on otherwise nothing will change anytime soon,” he added.

Economist Vince Musewe said the figures looked suspicious given the prevailing economic challenges.

“It is rather surprising for a country with increasing unemployment and company closures to be exceeding tax collection targets. This means that Zimra is either more efficient or more ruthless in forcing collections,”Musewe said.

“Unfortunately most revenues collected go to consumptive expenditure and will not result in any fundamental improvements in the economy or in the state of affairs. The danger remains that our taxes will be used for oiling the election machinery to our detriment. There is therefore nothing to celebrate.”

Economist Kipson Gundani said revised estimates create the impression of positive performance. Absolute figures tell a different story, but what increased are the actual collections due to higher collection efficiency by Zimra as evidenced by the recent spree of garnish orders, Gundani said.

“It is unfortunate the report does not specify the main source of the growth because if it is value-added tax, then it suggests increased economic activity,” he added.

Confederation of Zimbabwe Retailers founder and president Denford Mutashu said a growth in revenue collections is an encouraging development. – ZimInd

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