Kudzanai Gerede Business Correspondent
Government should balance revenue collection efforts and “open for business” opportunities to minimize substantial losses in potential revenue from multiple tax concessions negotiated by foreign investors in its bid to attract capital inflows, Zimbabwe Revenue Authority (ZIMRA) Commissioner General, Ms Faith Mazani has said.
A Tax concession resulting in tax expenditure is a programme, where government allows tax exemptions, deductions or credits to selected groups or specific activities and usually grants lower tax rates to tax payers under this program-This trims potential Government revenue.
Tax revenue accounts for more than 80 percent of Government income while tax concessions are heavily restricting revenue expansion efforts at a time Government was struggling to meet fiscal requirements.
Zimbabwe is currently putting in place a host of investor-benevolent fiscal measures to cajole foreign direct investment which has averaged $ 500 million annually in the last 4 years at a time regional peers like South Africa, Zambia, Mozambique and Angola are earning over $ 2 billion in FDI annually.
Speaking at a ZIMRA-Parliamentarians engagement meeting in Harare last week, Commissioner Mazani warned Government to be cautious of granting tax concessions, which apart from being incentives to attract investment, they benefitted private entities at the expense of Government’s shrinking tax net.
“As a country we need to be aware of the fact that tax concessions, which are granted to investors tend to erode the revenue base. Therefore checks and balances to ensure that concessions extended to investors do not outstrip the envisaged benefits to the economy must be employed.
“Concessions under Domestic Taxes include tax holidays and various allowable deductions from gross income before the tax rate is applied. Such numerous tax concessions usually result in companies ending up in a loss position thereby reducing the collectable taxes,” she said.
Several foreign companies particularly in the extractives sector are manoeuvring their way past tax obligations through negotiating favourable tax concessions, only to close operations as soon as the concession period lapses.
This is despite the fact that these firms export all dividends upon closure, yet they will have extracted the country’s natural resources without remitting funds to Treasury at a normal tax rate.
“Some companies in sectors such as mining are in perpetual losses while also receiving refunds. Some companies close at the end of the tax period and come in under new names for further concessions,” Mazani added.
According to the tax collector, Government lost about $ 1.019 billion in tax expenditure during the first quarter of 2018 which is about 48 percent of the total potential revenue of $ 2.132 billion for the same quarter.
Ironically, Zimbabwe’s economic policy going forward revolves around the operationalisation of Special Economic Zones (SEZs) to set in motion its industrial transformation, by offering such incentives to foreign investors.