BY LEARNMORE NYAMUDZANGA
Indeed the Covid-19 pandemic has had a major socio-economic impact that has caused a lot of challenges for public revenue.
Zimbabwe needs more tax revenue to recover from the pandemic and finance sustainable development.
Transparency and accountability in the use of tax revenue is among the major factors that can encourage citizens to pay their fair share of taxes.
If the government fails to account for the taxes paid, then it can be a mammoth task to encourage citizens to pay their tax dues.
In June 2021, we saw the publication of the auditor-general for the financial year ended December 31, 2019.
It is claimed that the delay by almost a year was caused by the constraints brought by the Covid-19 pandemic.
This is the perfect moment for the government to clarify to citizens the discrepancies noted by the auditor-general Mildred Chiri in the spirit of transparency and accountability.
My last two articles focused on the taxation of multinational corporations (MNCs). however, last week I was asked a critical question that inspired me to do this article.
There is a misunderstanding on what comes first, paying taxes by citizens or provision of public services by the government.
The major question was, why should we pay tax if:
l The police are no longer patrolling our neighbourhood and you have to pick them when you need assistance. How do we do that when we are being robbed? We are left with no option except to mobilise resources from the community to provide our own security because of robberies, thefts and break-ins into our homes
l Our roads, especially in our suburbs, are in a very bad state as there are not being maintained. Currently, we mobilise funds from the community again to repair our local roads. The municipality is supplying labour, but we have to transport and feed them.
l There are times when security forces including the police and army instead of protecting us are beating up the same people they are supposed to be protecting. Should we pay taxes in order to raise the salaries of people who will beat us?
l Public health services sector is in a deplorable state in Zimbabwe and you dare not get sick as there is not enough medicine and equipment. To make it worse, we expect demotivated medical staff to assist us.
l We have demotivated civil servants such as teachers because of poor salaries which will negatively affect the education and the future of our children. Why then should we pay tax?
In response, it is important to note that government typically obtains funding through taxation, borrowing, printing money, surplus from state-owned enterprises and foreign aid.
Taxation is said to be sustainable as compared to other channels since it promotes domestic resource mobilisation (DRM).
Zimbabwe has a huge public debt and it is struggling to access loans from the international financial institutions (IFIs), Paris Club, and other bilateral lenders.
The printing of more money is inflationary and depending on foreign aid is neither sustainable nor predictable.
Therefore, taxes remain our only reliable and sustainable source of revenue.
However, our tax system should be fair, adequate, simple, transparent, efficient and easy to administer.
According to Zimbabwe’s 2019 final budget, tax revenue was the government’s primary source of revenue, it contributed about 98% of the total revenue.
Tax is the backbone of our nation so yes, we should pay taxes on time and in full.
Christopher Bullock (1716) in his book The Cobbler of Preston, said: “it is impossible to be sure of anything but death and taxes.” So, like death, we can not run away from paying taxes.
Even though we may disagree with the way the government spends our money and issues of corruption among others, our constitution and other supporting statutes require us to pay tax.
For Christians, it is even spelt out in the Bible that we should pay our tax dues (Romans 13:6-7 and Matthew 17:24-27).
However, it also important to note the same constitution empowers citizens to demand transparency and accountability on the use of tax revenue.
Under normal circumstances, paying taxes should bring a lot of benefits to citizens.
This is well-explained by the four functions (four Rs) of tax as follows:
Revenue: we pay tax to raise the revenue required to deliver the services to citizen’s needs. Tax is a vital source of revenue for our government to fund essential services and infrastructure for the citizens.
When the government gets revenue from taxes, citizens are in a far stronger position to exert pressure that it be spent on the services to which they are entitled.
We should continue paying our taxes, but we must decide how it must be spent.
Redistribution: tax can play an important role in redistributing wealth within an economy, in order to reduce income inequality and poverty.
This can only be possible through progressive taxation and taxing the wealth through income, property and capital gains taxes.
Collected tax revenue must then be used to fund key services such as health and education, which the poor heavily depend on. Taxes can also be used to address economic inequality between women and men.
Representation: paying taxes helps in building accountability of governments to citizens, reclaiming policy space, state-building and democracy.
When we pay tax, we enter into a social contract with politicians and officials who are expected to raise and spend those revenues in a manner that benefits us the electorate.
Taxes must make our government more immediate and visible, and ultimately more accountable.
However, without transparency and access to information, citizens are less able to hold governments to account.
We must pay taxes to amplify our power to demand transparency and freedom of information.
Repricing: tax can contribute to the achievement of other social benefits by making it costly to engage in actions considered socially undesirable, or by incentivising behaviour that is considered beneficial to society.
Studies have pointed out that the social and environmental costs that occur as a result of the extraction of minerals (especially fossil fuel) are largely unaccounted for when making the decision about whether or not to embark on a mining project.
Thus, taxes can go some way towards internalising these otherwise unaccounted-for costs, for example through allocating a share of the mining royalty to local development funds earmarked for community needs.
Another approach could be to tax carbon emissions generated through transport and use the receipts for climate change adaptation and mitigation efforts.
However, the costs to more vulnerable households or businesses must be minimised through rebates, other supports or progressive carbon taxes.
Going forward, it very important for citizens to understand that our constitution and relevant statutes require us to pay tax on time and in full.
Now, more than ever the state is in dire need of tax revenue to recover from the Covid-19 pandemic, to build the economy forward better and for sustainable development.
Paying tax does not only help us to raise revenue, but helps us to hold our government and office bearers to account.
It also helps us to redistribute our wealth and making it costly to engage in actions considered socially undesirable, or incentivising behaviour that is considered beneficial to society.
Understanding the four functions of tax helps citizens to analyse tax policies and effectively contribute during budget formulation, its implementation, and evaluation.
They can also use this information for tax justice advocacy against regressive taxes and advocating for progressive taxes that reduce the gap between the rich and the poor.
- Nyamudzanga is an independent economist, tax consultant, Zimbabwe Economics Society (ZES) member, and holder of a Master’s in Tax Policy and Tax Administration. Email: firstname.lastname@example.org.
- These weekly articles are coordinated by Lovemore Kadenge, an independent consultant, past president of the ZES and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe (ICSAZ). — email@example.com or mobile +263 772 382 852.