Let’s all pay
IN the developed world, there is a realisation that the so-called sin industries generate enough revenue from consumers to deserve a tax. Sin industries include trades like prostitut
ion, glorified as the commercial sex work or pornography, and gambling. Products of these industries are deemed by moralists to cause the erosion of social capital and a rise in criminal behaviour. Their products are, in short, evil itself. But those running the industry do make money – sometimes more than those in white collar jobs. This whets the appetites of governments to want to share in the spoils.
With sex, countries in Scandinavia, and Germany set up red light districts, health institutions to check and certify the sex-worthiness of sex workers.
That has justified taxing the profession, but how do you do it with no proper accounting by those involved?
Presumptive tax was the answer. Finance minister Herbert Murerwa introduced it to many Zimbabweans for the first time last week in his mid-tern fiscal policy review. Commercial sex workers in Zimbabwe are still exempt but bus operators and SMEs now have to pay this “sins” tax.
The similarity between taxed prostitutes and bus operators and SMEs is that they are considered hard to tax but must still be taxed. This is the hallmark of presumptive tax. It is employed primarily in economies where the so-called “hard-to-tax” entrepreneurs make up the majority of the population and administrative resources are scarce on the part of the collector.
The authorities presume that the targeted group lacks the financial transparency that allows for effective taxation by government. This forces government to estimate or presume the appropriate income on which taxes should be levied.
There is also another similarity. The industrialists have to pay the tax for them to be given licences to operate. These are health certificates in the case of commercial sex workers, road permits for bus companies or shop licences for SMEs. The industrialists can however decide not to pay the tax but still continue in business in the form of illegal prostitution (in countries where it is legal), use of uncertified buses or street vending.
I have no quarrel with transporters and SMEs paying taxes so long as it is sustainable. But Murerwa targeted the wrong sector.
The so-called new farmers must pay tax. Currently the bulk of them are not paying any. They are not utilising the land allocated to them for free under the disastrous land reform programme. They should contribute to the fiscus because they are beneficiaries of government largesse in the form of free land, soft loans and input support programmes.
In March the Zimbabwe Revenue Authority (Zimra), responding to questions from my desk on why new farmers were not being taxed, promised us something was being done.
“Farmers have always been taxed much like any other business entity,” Zimra said then. “They contribute tax under the various tax heads, including VAT, PAYE and Income Tax.
“In line with the government’s agrarian reform project, however, studies are currently taking place which will look at the taxation of new farmers and how they can contribute more positively to the fiscus.”
When will Gershem Pasi announce the results of his study if he has been studying anything since March?
The World Bank says economists advocate a presumptive tax on the potential use of land to encourage landowners to utilise it productively.
In Zimbabwe agricultural output comprises 16% of GDP. Yet, because there is little bookkeeping and a propensity to sub-lease, new farmers can be difficult to trace. They fall in the hard-to-tax zone and there is an urgent need for government to come up with a presumptive tax. The level of taxation can take into account the geographical location of a farm, soil type, potential output or crop yield, and levels of assistance by government.
Reserve Bank of Zimbabwe governor Gideon Gono’s ambitious “command agriculture” pilot project can incorporate presumptive tax to ensure the farmers also contribute to the national purse.
This may not sound politically-correct because the new farmers have “to enjoy the fruits of independence”. But that is wrong because mere mortals like us cannot be taxed to death for new farmer Bobo to get cheap money to grow crops and pocket every penny.
While presumptive tax is meant to eliminate bureaucracy and allow for smoother revenue collection, it can still be problematic here. Zimra officers have become notorious for corrupt activities and crude fastidiousness in the execution of duty. This includes stripping women and subjecting them to humiliating body searches. A combination of this crudeness and corruption can be used to estimate taxable income, analyse the profitability of various economic activities and to define the indices for calculating presumptive income. As a result, genuine small businesses with no capacity to challenge the taxman’s estimates could be overtaxed while political prostitutes are exempt. How unfair can life be?