Taxes must be efficient

11 Aug, 2017 - 05:08 0 Views
Taxes must be efficient

eBusiness Weekly

Zimra is trying to fulfil its mandate of collecting taxes from all who should be paying by increasing its range to bring in more from the informal economy, including small-scale gold miners and even panners, along with as many others as possible.
However several problems arise.
First it is obvious, assuming that tax collection is designed to raise revenue rather than just create an egalitarian society, that the cost of collecting a tax has to be less than the amount realised by that collection. It does not make sense to mobilise a collection team for a week to collect $10 each from ten taxpayers, for example.
This is one reason why successive Ministers of Finance have looked at presumptive taxes for the semi-formal and very small businesses, and these can be considered more as a fee for being allowed to be in business rather than a tax on actual income. The very small businesses, often just a single person doing some sort of skilled work, can escape the presumptive tax if they keep proper accounts and then pay taxes on actual profits. But the accounting costs to the semi-formal business of such accounts might be higher than the tax saving, so many prefer the simpler solution.
The second approach by Finance Ministers was the 10 percent withholding tax that proper tax-paying businesses have to collect when they pay for the services of any person or business who cannot present a tax-clearance certificate. The collection cost is borne by the payer of the services not Zimra and the amount is roughly what a tax on a profit from the paid sum could considered to be. Again those who want it otherwise are welcome to regularise their accounts and taxes and gain the required certificate, which they need in any case to do work for the Government.
The same idea was one of the reasons to switch from sales tax, collected and paid by the final seller of a product or service, to VAT, which is paid in steps along the way from factory gate or border post. If Zimra miss the VAT on the final mark-up of a street vendor they still have the bulk of the VAT from the bigger businesses en route.
But there are other problems, and even conflicts between State goals, if Zimra is going after the smallest of the gold miners. The most obvious way for the State to get its share would be to extend the royalty system to gold. This would directly negate the incentives paid to gold producers, over and above the official price. It does not make much sense for the Reserve Bank, through Fidelity Printers, to pay an incentive just so Zimra can force Fidelity to collect the same amount as a royalty.
The incentive was the carrot part of the measures, along with the stick of enforcement of gold laws, to get all producers to sell their output, no matter how tiny, to Fidelity.
That leaves a presumptive tax, which has slightly more merit since it would penalise the most inefficient and be of little burden to the efficient. But gold is very easy to smuggle and can be mined at night or at times when Zimra agents are not around. So there are potentially high collection costs and gold producers might be discouraged from selling through official channels.
This conflict obviously requires careful consideration by the Government, which needs maximum gold production marketed through legal channels to help balance Zimbabwe’s accounts and pay for vital imports as well as maximum tax revenue to pay Government bills. Someone needs to do the analysis of how much gold might go through illegal channels and how much revenue, after collection costs, there is likely to be and then the Government can seek Parliamentary approval to set priorities.
Sometimes a tax might not make sense.
This is largely the case with another very big group of productive people, the smaller-scale farmers. They grow crops and sell part of them but no one has ever figured out a way they can be taxed with the authorities even retreating from collecting the withholding tax of 10 percent after realising that this might be the entire profit margin, or at least so farmers would argue.
In the end the farmers do pay taxes since they spend their income, after covering inputs, on goods and services whose providers pay VAT at the very least. That level of comfort might well be all we gain from small gold producers, who also spend their rather small incomes rather than stashing it under a mattress for example.

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