Some of the key stakeholders that were present include Confederation of Zimbabwe Industries (CZI), Institute of Chartered Accountants of Zimbabwe, independent analysts, various corporates and members of the media.
The contributions made at the Public Hearing will be considered by the Portfolio Committee and will be part of the Committee's report to be tabled in Parliament.
The Income Tax Bill will repeal and replace the current Income Tax Act (Chapter 23:06), which was first enacted in 1967, and is set to become law as of 1 January 2014.
One of the key changes contained in the Bill is the proposed migration to residence based taxation system. Our current Income Tax Act uses the “source based principle” where tax is levied on income originating from Zimbabwe only. The residence based system will however tax residents on income earned worldwide, as is the case in South Africa, United States and other countries.
The proposed system will result in the tax base being widened, with more revenue being collected by the taxman, as the tax net would have been enlarged.
CZI raised concerns about how the transition to residence based system will take place. The concern is valid, considering how ZIMRA is currently failing to effectively collect revenue from the informal sector, locally. How then will the taxman be able to harness revenue from across the borders?
The change-of-use tax was also criticized by the public. This is tax levied by the taxman, for instance, if a business decides to convert its industrial building to an office. It defies logic why such a conversion should warranty tax payment.
The public also pointed out that the definition of the term “resident” must be revised. A resident is defined as anyone who is present in Zimbabwe for a maximum of 183 days in a given twelve month period.
Stakeholders encouraged the idea of widening the tax base, to bring more people in the tax net. This is particularly important, considering the fact that about 60 percent of the economy is currently composed of informal businesses that are not paying tax. The informal businesses have grown significantly over the past decade, especially during the period of economic meltdown; when people who were losing their formal jobs started their own small businesses to earn income.
Usurious penalties that are currently being levied by the taxman for non-compliance were also castigated by members of the public. If a company delays to pay corporate tax by a week, maybe due to an inevitable technicality, it is immediately slapped with a penalty to pay 100 percent more to the initial amount that it was initially supposed to pay. This was said to be unfair, considering that the company might have been paying its taxes in time all the time, but was just faced with a hiccup for that moment. The practice of levying a high penalty was also said to be unfair, considering that there are others who are not even paying their taxes at all.
Stakeholders therefore proposed that the new tax law should find ways of rewarding taxpaying corporate citizens, who would have performed well in a certain number of accounts, as opposed to punishing them for money they are going to pay anyway.
An interesting demonstration of government's double standards was raised by members of the public. There are companies that deal with government departments and parastatals like ZIMRA, by supplying products to these entities. However government may take months before paying the respective company. The company will however be still slapped with a penalty for late payment of tax when in fact it would not have been payed yet by government. It is therefore crucial for government to redress this anomaly in the new tax legislation.
The Portfolio Committee explained that many stakeholders make the error of taking their issues to ministers, which is not an effective approach of having them addressed, as ministers represent the Executive arm of government, whereas Parliament represent the Legislative arm. The Committee highlighted that contributions should rather be made to it, since Parliament is better placed to engage the Executive.
Post published in: Business