Experts have called on the SADC region, Zimbabwe included, to consider increasing the depth and coverage of electronic transaction tax in view of the increased use of emerging electronic payment streams to widen its revenue base.
This comes as the world over is increasingly moving towards digitally enabled economies, exacerbated by the outbreak of the Covid-19 pandemic, which has put a strain on production, widened inequalities as well as increased pressure on public debt as countries have been forced to borrow to meet food security needs, medication coupled with rescue packages for businesses.
Zimbabwe introduced the 2 percent tax in 2018, which captures every electronic transaction including mobile money.
African Forum and Network on Debt and Development (AFRODAD) policy consultant in the domestic resource mobilisation portfolio Michael Zuze, said such taxes are critical and will also assist member countries to tap into the informal sector that has for years largely remained outside the income tax bracket.
“Similarly, technology can be leveraged to enhance the efficiency of tax collection by modernising and streamlining tax collection processes, reducing compliance costs and closing leakages.
“Improving institutions, particularly, transparency on budget and borrowing is critical to boost the country tax capacity and the redistributive role of fiscal policy,” he said at a recent annual debt conference held in the capital.
This comes as various studies have shown that there has been low domestic revenue amid high gross financing needs in the region therefore accelerating borrowing from both domestic and external sources to finance development expenditure.
Consequently, public debt has been rising in SADC economies, posing the risk of accumulating debt to unsustainable levels.
“The rapid pace of debt accumulation has seen an increasing number of SADC countries debt distress ratings deteriorating from low and moderate to high risk and in-debt distress rating which upend development progress.
“The situation has been compounded by the Covid-19 pandemic, which reduced growth rates, hence tax capacity and debt carrying capacity of SADC countries,” said Zuze.
According to the Organisation for Economic Co-operation and Development (OECD) total revenue as a percent of GDP in SADC countries has remained fairly stable, averaging 20 percent compared to averages of 34 percent in advanced economies over the period 2007-2019.
The total revenue as a percentage of GDP vary substantially across SADC countries, with countries such as Lesotho, consistently recording a high revenue to GDP ratio above 40 percent, followed by Seychelles at 36 percent.
At the bottom is Tanzania, DRC and Zimbabwe with less than 15 percent of revenue as a percentage of GDP.
“At this level, revenues are inadequate to finance basic state needs,” said Zuze adding the tax capacity in SADC countries is constrained by among others large size of the informal sector, illicit financial flows, opaque of the extractive sector and the low-level of taxable income.
These factors also subsequently lead to inequalities that have also been worsened by the outbreak of the Covid-19 pandemic. However, taxation policy can be a powerful tool for addressing inequality if appropriately administered and can achieve the three main objectives, of supporting macroeconomic stability, provision of public goods and redistribution of income.
Zuze said countries in the region can also leverage the growing urbanisation and introduce wealth tax, which can take the form of expanded coverage of property tax in view of the growing values of properties in urban cities.
The additional revenue from property tax can assist in debt service as well as boosting social expenditure, thereby assist in reducing inequality and maintaining debt sustainability, he said.
Tax expert, Learnmore Nyamudzanga highlighted that Covid-19 exposed and exacerbated challenges related to debt, public finance management and magnified inefficiencies and inequalities in the delivery of public services.
The pandemic further exposed the unpreparedness of our nation in terms of health infrastructure and social safety net issues
Studies have also shown that beyond the 45 percent to 57 percent tax to GDP, public debt lowers economic growth (GDP), worsens poverty and inequality.
But transparency and accountability will help in utilisation of contracted debt and improve social service delivery (SSD) as well as economic growth.
“To improve the quality of SSD, restore growth and attract investment, there is a need for transparent loan contraction processes, prudent fiscal, monetary and debt management policies reinforced by external support and debt relief,” he said.