Building A Sustainable Tax Base To
Contain Fiscal Deficits In A
Deflationary Environment
“The world we have created today has problems
which cannot be solved by thinking the way we
thought when we created them.”
Albert Einstein.

Scope of Presentation
1. Introduction
2. Tenets of a Sustainable Tax System
3. Tax Base Sustainability Initiatives
4. Sustainable Tax Base – Zimbabwean Context
◦ Anti-Corruption Campaigns
◦ Automation
◦ Increase Number of Taxpayers
◦ Industry Capacitation
5. Conclusion

Introduction
Tax revenue enables Government to fulfill its obligations such as
provision of social services, infrastructure, and other vital
services which facilitate production, enhance growth and
provide stability in the economy.
Normally, Tax Revenue is one of the major sources of
Government Income, but in Zimbabwe it is currently the
primary source of income for the Government.
 Government allocates scarce resources among competing
needs to fulfil its obligations. So the size of the tax base
determines the success and sustainability of its programmes.

Tenets of a Sustainable Tax System
Sustainable Tax System that is:
 Fair, Simple, Equitable.
And:
Ensures those who can afford it pay the most
Raises enough money to meet community needs
Collects money efficiently with minimum costs to tax payers
Is simple to understand and discourages dodgy tax schemes
Clearly Zimbabwe has a Sustainable Tax Problem

Deflation
Deflation is defined as a fall in the general price level or
negative rate of inflation.
Deflation often triggers recession and discourages spending
especially luxury goods because it creates uncertainty.
Therefore, periods of deflation often lead to lower economic
growth; (this in turn creates more deflationary pressure in
the economy, a vicious cycle.
Deflation increases the real value of money and the real
value of debt and makes it more difficult to repay debts.
 Labour markets often exhibit ‘sticky wages’. In particular,
workers resist nominal wage cuts (no one likes to see their
wages actually cut, especially when you are used to annual
pay increases. Therefore, in periods of deflation, real wages
rise.

Threats to Tax Base Sustainability Initiatives
Tax Administrations concern about Base Erosion and Profit
Shifting (BEPS).
Tax compliance problems through evasion and avoidance
Weak capacity to determine the tax base and tax gap
(without tax gap data you can’t determine compliance).
Legislative framework to deal with those issues. Challenges
to the Tax Authorities
 Regional Treaties or Trade Agreements as a threat to
sustainability. Government to negotiate treaties that create
equity and serve the interests of both parties to the treaties.

Threats to Tax Base Sustainability Initiatives
Morality of taxpayers, corruption and underhand
activities. Under-reporting of Income even in developed
countries (IRS 2006 $376 billion). Tax non-filing $28 billion.
UK 2009 46 billion pounds 6%. In developing countries 15%
to 30% of tax liability.
Corruption strongly associated with low revenue inflows.
 ‘Informality’ - Establishing streamlined tax regimes for
small businesses, and extending to them the methods of
taxpayer segmentation.
Inability to tax high-income earners, sustainability of the
tax base under a deflationary environment should follow
the footprints of money.

Sustainable Tax Base
The Efficiency and Effectiveness of the Tax Administration is key to
ensuring the sustainability of the tax base:
 Automation of Business Processes
 Anti-corruption campaigns
 Simplification of legislation
 Capacitating industry
 Income Tax Reform
 Taxpayer education
 Know your customer and customer’s customer
 Expansion of the tax base
 Enforcement strategies that are customer-centric

Anti-Corruption Campaigns
 Corruption reduce fairness of a tax system, overburdens
compliant taxpayers thus widening the fiscal deficit.
 The following are some of the strategies employed to fight
corruption:
 Automation
 Life style audits
 Asset declarations by ZIMRA staff
 Whistle blowing
 Use of hotlines
 Prosecution

Automation
 Automation promotes convenience, efficiency and accuracy
of returns and reduces cost of tax compliance.
 Fiscalisation and the tax management system
 ASYCUDA World
 Electronic Cargo Tracking system
 E-services, e.g. e-filing, e-banking
 Still have teething problems and connectivity problems

Broadening the taxpayer base
 Further simplification of the tax regime
 Harnessing informal sector
 Street mapping
 Engagement and Linking into the databases of other
regulatory authorities and relevant Stakeholders.

Capacitating Industry
 Revenue collection remains a function of the level of
economic activity and hence limits to measures without
reversing deflation and stimulating economic recovery
 Strategies to accelerate economic recovery
 Promotion of local industry capacity, Buy Zimbabwe to
build local demand
 Targeted and time framed protection of local industries
 Targeted and time framed tax concessions

Conclusion
Given the current deflationary economic environment, huge
challenge to achieve a sustainable tax base.
New Income Tax Bill seeks to address some of the challenges
associated with the building of a sustainable tax base.
Anti-corruption campaigns will enhance revenue collection and
this calls for collaborative effort from all stakeholders.
Expansion of the tax base and the taxpayer base a key success
Factor for Tax Authorities to ensure sustainability.

Gratitude
Thank You!
Siyabonga!
Tatenda!