BUILDING A SUSTAINABLE TAX-BASE TO CONTAIN FISCAL DEFICITS
Building A Sustainable Tax Base To
Contain Fiscal Deficits In A
“The world we have created today has problems
which cannot be solved by thinking the way we
thought when we created them.”
Scope of Presentation
2. Tenets of a Sustainable Tax System
3. Tax Base Sustainability Initiatives
4. Sustainable Tax Base – Zimbabwean Context
◦ Anti-Corruption Campaigns
◦ Increase Number of Taxpayers
◦ Industry Capacitation
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.
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 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
Threats to Tax Base Sustainability Initiatives
Tax Administrations concern about Base Erosion and Profit
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
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
Simplification of legislation
Income Tax Reform
Know your customer and customer’s customer
Expansion of the tax base
Enforcement strategies that are customer-centric
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
Life style audits
Asset declarations by ZIMRA staff
Use of hotlines
Automation promotes convenience, efficiency and accuracy
of returns and reduces cost of tax compliance.
Fiscalisation and the tax management system
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
Engagement and Linking into the databases of other
regulatory authorities and relevant Stakeholders.
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
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.