Toxic combo of countless laws, poor economy

SOMETIMES people put so much faith in laws to the extent that they push for laws to deal with every perceived problem.

Most often this results in countless laws that duplicate and overlap each other.

Too much regulation can be a burden and cost to business, and this can be damaging to the economy.

In an article published in its May 7, 2015 issue, the Africa Report — a France-based monthly magazine which covers news on the continent — questioned Zimbabwe’s investment climate relative to the environment obtaining in the region.

It was noted that Zimbabwe’s investment environment fared worse than its regional peers.

Though Government is investing in improving the doing business environment, there is still little change on the ground.

Foreign direct investment inflows remain low. The operating environment has become so difficult that even Zimbabwean business owners are setting up office in neighbouring countries. Most worryingly, statutory obligations and uncertainty continue to drive companies out of business.

It is a mammoth task to transfer money out of Zimbabwe for legitimate business transactions.

While it can be appreciated that the Reserve Bank of Zimbabwe has an obligation to stop money laundering and needless externalisation, how it goes about this naturally defines the business operating environment.

Cash has become scarcer and companies that depend on imported raw materials are struggling to make payments to offshore suppliers.

But companies are struggling on multiple ends.

Zimbabwe Revenue Authority auditors and investigation teams have equally become a menace. Wherever they visit, they are sure to leave clients in distress.

Yes, companies have to be compliant to the law, but there are reasonable ways of enforcing the same. It has to be considered that companies can make honest mistakes. A win-win formula can go a long way.

Many companies are being driven to the edge by unsustainable debt obligations.

Granted, Zimra are only doing their bit by complying with the law, but truth be told, their heavy-handedness, which at times is unreasonable, is negatively impacting on the economy.

Capital and cash are cowards: they easily flees in situations and circumstances where they feel threatened.

The downside of forcing companies to close — whether wittingly or unwittingly — far outweighs the benefits of pinning them to submission.

No doubt, people have to be tax compliant for the country to move forward, but there must be some degree of professional judgement when it comes to assessing offences.

It is critical at this point to note that tax evaders indeed have to be punished.

This special delinquent group must however be distinguished from those who try by all means to comply but unfortunately make some mistakes.

Zimra must also consider being lenient with companies who comply and pay their taxes on time.

Surely, if such companies are frustrated and decide to close, what will become of Zimbabwe?

At times too much legislation and being too hard on companies in an already depressed economy can be counterproductive.

The whole idea of Zimra audits should be to ensure compliance, collect more revenues and plug loopholes.

However, some of these audits frustrate taxpayers.

In fact, they create a very hostile environment which makes it very hard to do business.

It is arguable that audits are not meant to punish people, but to simply teach them to be compliant.

Indeed, ignorance is not an excuse, but there are many people out there who do not even know how the tax system works.

Instead of creating more revenue from the tax audits, Zimra may indeed create the huge debts in the system but never receive any payment afterwards as the companies flounder and collapse. This is happening in Zimbabwe and we cannot ignore that. Urgent action is required. Lawmakers should clearly know that every investor and every entrepreneur start a business to make money. If one is working in order to satisfy statutory obligations and meet monthly business costs, then there is no business to talk about.

Amongst many other reasons, the factors mentioned above can frustrate any businessman and make the operating environment extremely hostile.

In essence, companies need to survive, and the Government needs to collect taxes.

So, as policy makers explore ways to make the business environment more accommodative, reviewing and simplifying legislative hurdles is one key point that has to be considered.

Clearly, such hurdles do not make the environment more efficient, but it slows down business and creates red tape.

The current situation is untenable and has to be treated with the urgency that it deserves. Taurai Changwa is a member of the Institute of Chartered Accountants of Zimbabwe and an estate administrator with vast experience in tax, accounting, audit and corporate governance issues. He is MD of SAFIC Consultants and writes in his personal capacity. Feedback: tauraichangwa1@gmail.com, Facebook page SAFIC Consultancy, and WhatsApp +263772374784.