Revenue streams running dry for the Zimbabwe

Zimbabwe is in a dire economic situation which, with all due fairness is surmountable only if rationality is allowed to prevail. Of recent there has been pressure on Zimbabwe Revenue Authority (ZIMRA) to step up its revenue collection efforts since the government coffers continue to dwindle. The government has no extra funds and is operating on a cash budget where, whatever little is collected is used for recurrent and immediate government expenses thereby shutting out any investment in long term projects. In other words the whole country has landed on the shoulders ZIMRA and failure on its part is tantamount to national bankruptcy whose consequences are unimaginable. 

For instance, bankruptcy on the part of government means the government can’t pay its workers or certain national projects, those dependent on government workers can’t enjoy that dependence anymore, and the private sector whose customer base is largely made up of civil servants can’t breathe either. The cycle ripples itself and everyone bears the ugly consequences directly. This is the dilemma which Zimbabwe is trying to avert and instead of looking at the bigger picture, policy makers have remained entrenched in their myopic view of the economy to an extent that they continue to pile pressure on an entity like ZIMRA whose operations have been scuttled by failed economic policy too.

The bigger picture is that the traditional and usually reliable revenue streams have failed to satisfy the taxman due to bad economic policy. Corporate tax, Pay As You Earn (P.A.Y.E) and Value Added Tax (V.A.T) are undoubtedly some of the major sources for government income. In Zimbabwe these major streams have failed to satisfy government recurring expenditure.

When company closures are the order of the day and constrained returns continue to strangle the few existing corporates one can only wonder if meaningful corporate tax can be collected by the taxman. Company closures inevitably result in the laying off of workers and subsequently lead to a rise in the unemployment. High unemployment levels cannot satisfy a taxman whose hopes are pinned on P.A.Y.E. High unemployment levels also translate to low buying power on the part of consumers which ultimately means that not any meaningful V.A.T can be drawn from the market. The vicious cycle continues to replicate itself.

This is the truth that ZIMRA faces. Industry is down and no meaningful corporate tax can be drained from it. The demise of industry has resulted in massive unemployment and this leaves little room for meaningful revenue from personal income tax. This massive unemployment has left most Zimbabweans with less buying power and this has affected V.A.T collections in a way. In essence ZIMRA is left with narrow avenues for sustainable revenue collection and of late there have been suggestions that the taxman should devise ways of tapping into the informal sector. 

A closer analysis into this idea clearly renders it futile. The informal sector is thriving not because of an underlying growth in the conventional or formal economy but out of desperation instead. Most Zimbabweans have turned out to informal trading because it has become a major form of sustaining livelihoods in an environment where more than eighty percent of the working population are unemployed. It is technically and economically difficult for ZIMRA to tap into the informal market. Above all the tax revenue which they anticipate from this market will definitely not be sufficient to their needs because the informal economy is also catching the virus which is killing the formal economy. The contagion effect is playing out here.

In light of these developments the real question is centred on whether ZIMRA can do the unimaginable and draw water out of a stone. One sad thing about economics is that miracles are very much non existent. Instead of focusing energies on how to tap into the informal economy and milk out some tax revenue, ZIMRA should first look at its own systems. Most revenue leakages are a result of massive corruption among the rank and file of its human capital. A serious organisation faced with serious challenges should clearly look into such issues. ZIMRA should ensure that revenue leakages are dealt with and then think of other strategies to tap revenue. However, the ultimate solution lies with the policy makers (government) themselves. The Zimbabwean challenge of dwindling state coffers does not need innovation on the part of ZIMRA or solicited advice from the IMF or economists. The solution lies in our policymakers who are not taking heed to the incessant calls on the need for them to think and act rationally.

Here is what a rational government does when faced with a growing challenge of a dry tax base and dwindling revenues: Promote private sector capital (both local and foreign) which in turn results in a rise in employment and ripples out creating new capital and employment in the process. Simple as it is, the taxman does not need to “draw water out of a stone.” What the taxman can only do is go and pounce on the new capital being created and raise the fury out of the rising employed population by demanding his P.A.Y.E.

The onus is on the government of Zimbabwe to actively promote private and public capital regardless of roots (i.e whether domestic and foreign) and reap out the revenue benefits which comes its way because ZIMRA cannot simply “DRAW WATER OUT OF A STONE!!”