An assessment of the administrative capacity of the Zimbabwe Revenue Authority to deliver the envisaged benefits of the new income tax bill

Abstract

The New Income Tax Bill (NITB) proposes to move from the Source-based tax system to a Residence-based tax system. Under the current tax system, income is taxed only if it is from within Zimbabwe (except for a few special cases where income from outside Zimbabwe is deemed to be from a Zimbabwean source). The proposed tax system levies tax to Zimbabwean residents’ on all income regardless of where it happens to have been generated. The residence tax system is expected to broaden the tax base and hence government revenue generation. However, these tax reforms have been met with mixed feelings as it is not clear whether the envisaged benefits of the reforms will be realised, considering that, in the past decade, Zimbabwe’s tax reforms had minimal impact on improving government revenue. This study investigated the administrative capacity of the Zimbabwe Revenue Authority (ZIMRA) to effectively implement the new tax reforms and possible challenges associated with the implementation of the new tax system.

The study adopted a mainly quantitative approach research design. Primary data were collected using a questionnaire and informal interviews. Purposive sampling was used to select thirty six tax professionals. A response rate of 78% was achieved. Data were analysed using the Statistical Package for Social Scientists (SPSS) software (V17.0) and interview responses through summative content analysis.

The study established that many benefits are expected to accrue from the proposed tax reforms. Not only does the NITB increase the tax base by bringing into the tax net the worldwide income of residents, it also simplifies the current complicated tax legislation by bringing up tax laws to international best practices and aligning them to Generally Accepted Accounting Practices (GAAP). It also removes some exemptions and preferential treatments to certain taxpayers.

However, the study noted ZIMRA’s administrative shortcomings to deliver the envisaged benefits of the tax reforms. The reasons for this include the inadequacy of ZIMRA’s information technology infrastructure to support the new tax system, lack of funding of the changeover, the lack of clarity in certain provisions of the NITB and the limited number of tax treaties that Zimbabwe has with bilateral trading partners. Tax treaties are critical under a residence basis of taxation, as there is need for the exchange of economic information on Zimbabwean residents abroad, between Zimbabwe and the host nation.

The study therefore, concluded that the proposed bill will not have significant impact on government’s revenue generation capacity. The research also concluded that ZIMRA is not yet ready to roll out the NITB. It does not have the financial resources, nor the requisite information technology infrastructure. The NITB lacks the necessary legal support in the form of tax treaties as Zimbabwe only has 14 tax treaties. This hampers the implementation of the residence basis of taxation, as only countries under a double taxation agreement are bound to exchange information on tax matters of foreigners living in their jurisdictions.

The research recommends the postponement of the implementation date of the new tax law to address issues of clarity of the law, capacity of ZIMRA to implement and enforce the new law, awareness among the populace and negotiation/review of tax treaties with Zimbabwe’s main trading partners.