THE cash-strapped but extravagant Zimbabwean government, which is operating on a hand-to-mouth basis, is facing a tough 2015 as its revenue base is expected to continue dwindling due to the liquidity crunch currently gripping the country, top government officials warned.
The development comes at a time the Zimbabwe Revenue Authority (Zimra) announced this week that net collections for 2014 were US$3,6 billion against a target of US$3,82 billion, a negative variance of 6%.
Revenue collection by Zimra was particularly poor in the fourth quarter of 2014 and the trend is expected to continue into 2015 forcing the authority to think outside the box in its quest to sustain government operations.
“Fourth quarter net collections were US$996,94 million against a target of US$1,1 billion. This translates to a negative variance of 10%,” Zimra commissioner-general Gershem Pasi announced in a statement.
Projections of a tougher 2015 come at a time government, whose operations depend on tax revenue, is struggling to pay its workers on time. The shrinking income base has also resulted in the government failing to embark on any capital projects of note.
Presenting his 2015 US$4,1 billion budget last November, Finance minister Patrick Chinamasa revealed US$3,7 billion would be spent on recurrent expenditures such as labour costs, meaning an insignificant amount would remain for crucial development projects and service delivery.
The budget was in December revised downwards to US$3,6 billion.
A senior Zimra official said the organisation had failed to meet its target despite going out of its way to raise funds in an economy saddled with a severe liquidity crunch which has resulted in massive retrenchments, company closures and scaling down of operations.
“To get close to the target, we had to put in place stringent and unpopular revenue collection measures among them garnishing the accounts of non-co-operating clients. This forced many companies to come to the negotiating table where payment plans were agreed,” said the official.
“We are envisaging a more difficult 2015 and have come up with a number of strategies to raise revenue including taxing the informal sector. In addition, there is a tax amnesty, which has been in place since the government published the Finance Act (No 2) of 2014 in October.
“The amnesty is targeting individuals, companies, corporates or incorporated body of persons and trusts, who can apply to regularise their affairs and by doing so they will be granted relief on penalty, interest and prosecution.”
Companies and individuals have been given up to March 31 2015 to apply for an amnesty during which they should regularise their tax arrears incurred from February 1, 2009 to September 30, 2014.
The amnesty period covers taxes and irregularities on taxes administered by Zimra, among them employees tax, income tax, value-added tax (VAT), withholding taxes, presumptive tax, capital gains tax, customs and excise duty, licences for bonded warehouses and private sidings, royalties and other fees.
“We hope people will take advantage of the amnesty, so that we increase our revenue base. The 2015 outlook is quite poor, hence the desperate moves such as taxing vendors and introducing a tax amnesty,” said the official.
It is estimated that between US$3 billion and US$7 billion is circulating in the informal sector, which currently does not pay any form of tax.
Individual tax collection, which accounted for 26% of the revenue collected by Zimra in 2014 (US$911,8 million) against a target of US$760 million is expected to lead the way again this year. However, there are concerns that the continued closure of companies and retrenchments will negatively affect revenue collection.
“We can also get spin-offs from indirect taxes from retrenchment packages, but the dilemma is that most companies are finding it difficult to pay retrenchment packages,” said the Zimra official. “We also have to bear in mind that a significant amount of the revenue raised was a result of stringent measures introduced by Zimra to ensure that companies pay their taxes and Pay As You Earn (Paye).
This included issuing garnishee orders and other threats.”
The official said other major contributors to revenue collection such as corporate tax, VAT on local sales and imports and customs duty, were expected to plunge in 2015.
In the 2014 revenue report, Pasi indicated that net corporate income tax amounted to US$372,1 million against a target of US$426 million, missing the target by 13%.
Net collections of VAT on sales were US$509,4 million against a target of US$748,8 million, a negative variance of 32%.
Pasi attributed the difference to a “reduction in local industrial capacity utilisation, which resulted in low levels of production on goods that attract VAT.”
He also attributed the miss to “the liquidity challenges (that) have negatively affected production as well as companies’ capability to secure funds or the procurement of efficient production machinery and manage cash flow”.
Cumulative net collections for customs duty stood at US$332,9 million against a target US$430 million. Customs duty figures were 23% less than expected largely because of liquidity challenges, which resulted in a reduction in volumes of imports that attract duty.
Despite having serious cash flow problems, the government continues to spend huge amounts on unnecessary trips and perks for ministers, service chiefs and senior government officials.
Speaking to journalists on Wednesday, former finance minister Tendai Biti slammed government’s penchant for spending beyond their means, likening it to “killing a rat and eating an elephant”