Man­gudya pro­poses flat tax

Chronicle (Zimbabwe) - - Business -

RE­SERVE Bank of Zim­babwe gov­er­nor Dr John Man­gudya says Zim­babwe should se­ri­ously con­sider in­tro­duc­ing a flat tax as a mea­sure to clog the huge tax gap in the in­for­mal sec­tor.

The lo­cal in­for­mal sec­tor gen­er­ally ac­counts for around 70 per­cent of the coun­try’s eco­nomic ac­tiv­ity, but the sec­tor is no­to­ri­ous for tax avoid­ance. Dr Man­gudya said a flat tax would ef­fec­tively broaden the coun­try’s tax base and hence ex­pand the gross do­mes­tic prod­uct (GDP).

“If the Zim­bab­wean econ­omy is 70 per­cent or 80 per­cent dom­i­nated by the in­for­mal sec­tor, it means we need a tax that talks to the in­for­mal sec­tor.

“Maybe we now need a flat tax for ev­ery­one who is in busi­ness in terms of the in­for­mal sec­tor. Maybe $10 or $20 per month,” he said.

He was speak­ing dur­ing the launch of the Con­fed­er­a­tion of Zim­babwe In­dus­tries (CZI) Man­u­fac­tur­ing Sec­tor Sur­vey 2016 re­port.

A flat tax is ba­si­cally a sys­tem that ap­plies the same tax rate to ev­ery tax­payer re­gard­less of in­come bracket.

Cur­rently, the Zim­babwe Rev­enue Au­thor­ity (Zimra) im­poses a pre­sump­tive tax on se­lected sec­tors of in­for­mal busi­nesses, namely trans­port op­er­a­tors, hair­dress­ing saloon op­er­a­tors, in­for­mal traders, small-scale min­ers, cross-border traders, op­er­a­tors of restau­rants and bot­tle-stores, cot­tage in­dus­try op­er­a­tors and com­mer­cial wa­ter­borne ves­sels.

Although pre­sump­tive tax leg­is­la­tion was in­tro­duced to broaden the rev­enue base in view of the in­crease in in­for­mal busi­ness ac­tiv­i­ties, the scale and di­ver­sity of SMEs has ex­panded sig­nif­i­cantly in re­cent times.

The RBZ gov­er­nor said the fact that most SMEs were not pay­ing tax meant that the coun­try’s GDP might ac­tu­ally be un­der­stated.

“Our GDP might not be as low as the ZimS­tats fig­ures in­di­cate today. I do be­lieve that Zim­babwe’s GDP is higher than that, be­cause if you have 70 per­cent of eco­nomic play­ers (the SMEs) not pay­ing tax and 30 per­cent are pay­ing tax­a­tion and they are bringing about $4 bil­lion,” he said.

An­a­lysts who spoke to BH24 con­tend with Dr Man­gudya’s as­ser­tions on the coun­try’s GDP level.

They say that Zim­babwe’s GDP could be un­der­stated judg­ing from the rev­enue buoy­ancy that can be in­ferred from cur­rent GDP fig­ures.

Rev­enue buoy­ancy is the ra­tio of rev­enue to GDP. Pro­ject­ing on cur­rent GDP lev­els, they say Zim­babwe has a rev­enue buoy­ancy of just over 30 per­cent, which they con­tend is a bit too steep for a highly in­for­malised econ­omy. — BH24

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