ANNUAL REPORT 2018|2019

10

TABLE OF CONTENTS

Vission Mission Values 2

President’s Remarks 5 4 CEO’s remarks 6 2018- 2019 Year in Review 7

Congress Resolutions 14

2018 Tax Survey 16

Financial Report 31

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5th Floor, Zambia House, 48 Kwame Nkrumah, Harare Tel: +263 4 293 5 530/1 Email: [email protected] Website: www.zncc.co.zw

13 ZNCC Annual Report 2018-2019 | VISION To be an upbeat Business Membership Organisation that lobbies and drives for the growth of the Zimbabwean economy

MISSION

We aim to be the leader in Business Development in the National Economy and a channel of Communication between business and the various authorities in Zimbabwe

VALUES In executing our mandate, we are guided by: • Professionalism • Integrity • Honesty • Accountability • Compliance with the Law • Fairness

| ZNCC Annual Report 2018-2019 ZNCC NATIONAL EXECUTIVE COUNCIL 3

Tamuka Tapson Macheka President

Ozius Marange Divine Ndhlukula Dr Deputy Immediate Past President President

Archie Dongo Tinashe Manzungu Dr Vice President Vice President Mashonaland Midlands

2018 2019 PRESIDIUM

Golden Muoni Kenneth Saruchera Vice President Vice President Matabeleland Manicaland

ZNCC Annual Report 2018-2019 | ZNCC NATIONAL EXECUTIVE COUNCIL 4

MEMBERS OF THE NATIONAL EXECUTIVE COUNCIL

Christopher Mugaga – Chief Executive Offi cer Mike Kamungeremu - Harare Branch Chairperson Roselyn Charehwa Musarurwa- Harare Branch 1ST Vice Chairperson Killian Ukama – Gweru Branch Chairperson Mngane Ncube - Bulawayo Branch Chairperson Brighton Ncube - Bulawayo Branch 1st Vice Chairperson Clive Chinwada – Mutare Branch Chairperson Misheck Mpofu - Victoria Falls Branch Chairperson Andrew Chekani – Masvingo Branch Chairperson

SUBCOMMITTEE CHAIRPERSONS

Archie Dongo - Membership & Public Relations Khutula Sibanda Dr - Macro-economics Tayengwa Chitauro - Trade & Advocacy Divine Ndhlukula Dr - Women’s Desk Lynn Mukonoweshuro - Enterprise Development and Business Growth Mike Kamungeremu - Finance & Administration Absolom Muchandiona - ADR and Legal

| ZNCC Annual Report 2018-2019 ZNCC President’s Remarks 5

The Zimbabwe National Chamber of Commerce continued, over the period 2018-2019, to focus on the provision of an array of opportunities in an effort to promote professional development. During the period, the Chamber continued to lobby and engage Government and continued on its mandate of developing, promoting and lobbying for its members and the Business community through advancing economic progress through the creation of good climate for business, developing and enhancing business entrepreneurship and identifying, promoting, servicing the interests and needs of the membership.

Over the 2018/2019 period, the Chamber has continued to be the Voice of Business equipping Business with development opportunities and this was achieved through lobbying, business advocacy, research, information dissemination, collaboration and facilitation with all stakeholders, government and regional counterparts in light of economically empowering and resuscitating corporate and industrial Zimbabwe.

It is unfortunate that, during the period, Business was affected by the violence and shutdown which occurred from 14 to 16 January 2019. Business could not transact due to the shutdown of the internet and this translated to lost revenue and even contribution to the fiscus. Other challenges also included absenteeism, vandalism and theft among others. A report on the Impact of the violence on Business was submitted to Government by the Chamber following consultations with the Members.

It is also unfortunate that during the course of March 2019, Zimbabwe was affected by Cyclone Idai that hit parts of Manicaland and Masvingo Provinces. At least 200 people are feared dead in Chimanimani and Chipinge due to the devastating effects of Cyclone Idai that swept through the country, leaving thousands homeless and property damaged. Chimanimani district and some parts of Chipinge, which are near the border with Mozambique, bore the brunt of Cyclone Idai and have been cut off from the rest of the country, after roads and bridges were washed away. Over the 2018/2019 period, the This Annual report shows 2018/2019 accomplishments, and Chamber has continued to be large strides that we have taken in championing our ZNCC mandate of developing, promoting, and lobbying for Business. the Voice of Business equipping Going forward, the Chamber is going to continue on the drive to Business with development support local Businesses so that Business becomes competitive and will continue to authoritatively and independently represent opportunities...... the views of business to local and national authorities.

ZNCC Annual Report 2018-2019 | ZNCC CEO Remarks 6

ZNCC 2019 Theme: “Expanding Horizons: Dynamic solutions for economic turnaround”

The Chamber has continued to embark on providing a focus on business empowerment as the engine for economic growth and encouraging competitiveness through the promotion of organised Business communities. The Chamber’s 2019 theme “Expanding Horizons: Dynamic solutions for economic turnaround.” The theme is most germane as it resonates well with us as a country, given that there is need to resuscitate industry for sustainable economic growth.

The previous year’s theme “Enterprise Development, Corporate Entrepreneurship and Sustainable Growth” is consistent with this years’ theme in that the Chamber is Expanding horizons for enterprise development by coming up with solutions that will transform our economy to a whole new level.

Why this Theme • We are broadening our focus as business to ensure that Business is key in turning around the Economy. We are looking at other business opportunities that we have not been utilising but in doing this, we are saying enterprise development is key in turning around the economy • Chamber is on the drive to equip business with development opportunities, to help create sustainable businesses which grow and lead to job creation, in turn contributing to sustainable economic growth • By expanding horizons we are broadening our focus given that there is a lot to get from the Africa Continental Free Trade Area, after the country has ratified Chamber is on the drive to equip

Creating a framework for a more collaborative and regional business with development approach while recognising the importance of a global outlook opportunities, to help create maximises new economic and infrastructure development opportunities. As the private sector, we need to be more proactive sustainable businesses which in helping to grow the economy and provide opportunities for grow and lead to job creation...... development and growth.

The Chamber will continue to advocate for a condusive business operating environment in Zimbabwe, which is driven by unique competitive advantages underpinned by new technology and innovation. By expanding horizons the Chamber has embarked on an economic development strategy which is a long term agenda to expand opportunities for business through investment and research.

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ZNCC POLICY DISCUSSION FORUMS AND acknowledges that expenditure on agriculture has been ENGAGEMENTS WITH POLICY MAKERS one of the major drivers of fiscal deficit (sections 170, 171, 172 ). Treasury Bills issued towards Command Agriculture The Chamber continued to engage Policy Makers and to discuss are a private debt, however we are aware of the high default key issues. Submissions have also been made for challenges that rate by farmers under Command Agriculture, it effectively are facing business to be addressed and the Chamber continues means that it is Government expenditure hence exposing to lobby so that a conducive environment for Business prevails. the monetary instability to further budget deficit. Command Agriculture has also created a crisis of expectations amongst ZNCC Submissions to His Excellency farmers instead of taking farming as business, they expect His Excellency, the President of the Republic of Zimbabwe Cde inputs from Government every year. We propose that the E D Mnangagwa held a consultative meeting with Business Government reduce funding of Command projects by Member Organisations on 29 October 2018 and ZNCC was part 50% whilst targeting only those who did well last season of the meeting. The purpose of the meeting was to provide an regarding payback. Take into account that of the $1.8 interactive platform with captains of industry and commerce billion treasury bills issued between January to June this to discuss the economic situation, exchange ideas and map year, almost $400 million went towards command farming. up strategies that will enhance the business environment. The o Lifting of SI 122- we applaud the Government for taking Chamber presented on “what requires urgent addressing” as the move given rampant shortages as well as capacity follows: challenges by local businesses which could not be solved o The Multi-tier pricing Regime - it is an undeniable fact that through closing the borders. In less than a month, South price distortions currently obtaining in the market are a Africa will be terminating bilateral agreement which has creation of currency misalignment or mispricing. The end been existing since the 60s and this does not augur well result became goods shortages in the market, simmering for the “Zimbabwe is Open for Business” mantra that we pressure for wage increase with militant approach being support as business. Therefore we call for the finalization expected from trade unions. The solution lies in liberalizing of the Industrialization strategy by June 2019 which the exchange rate, it will be painful in the short run but will guide our trade strategies going forward. The Local convergence will be realized in the medium to long run Content Policy also requires finalizing in the first quarter assuming austerity from the government. of 2019. In the process, we will be monitoring the impact o The 2019 National Budget - as business we are so worried of removal of SI122 through a committee we urge to be regarding the unit of account for the upcoming budget, constituted urgently by Industry and Commerce ministry - any attempt to soldier on claiming parity exists between US its constituency must be drawn from all members of the dollar and the RTGS will be a source of distortions, it will industry value chain from producers to the retailers. create inflationary pressures as well as promoting black o Communication - the rate at which we receive conflicting market trading given that even the public sector will be statements on a number of areas as well as battles by forced to procure goods from the black market. The solution Government authorities using the media has been a source lies in allowing the market to price or we look for average of worry. We certainly welcome the cabinet briefings you exchange rate since 1 October when market gyrations have introduced but can stretch it further by making sure escalated till to date. disparaging statements by unauthorized Government o The Macroeconomic framework - page 40 of the Budget figures are reprimanded deservedly. Conflicting statements strategy paper shows that fiscal deficit to GDP declining till are a cost to business as they raise the risk profile. In the 2021 when it reaches 3.1%, a closer look shows that this is same vein, we also request for Presidential Roundtable guided by increasing nominal GDP whilst fiscal consolidation gatherings with Business every half yearly. strategy from the government are not inspiring hence; o How exactly do we expect to tame Government spending without just outlining ambitious strategies which are devoid of figures o How many parastatals are to be weaned off by year end, how many foreign missions do we want to close as cost cutting measure and how are we going to deal with pressure for bonuses this year given the fact that civil service salaries had been significantly eroded by black market Dominance. o Command Agriculture - budget strategy paper

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2019 National Budget input submissions (MP) on Wednesday 19 September 2018. The visit was part The Chamber presented and submitted its 2019 National Budget of the courtesy call visits that the Chamber has embarked on, input to the Ministry of Finance and Economic Development after the announcement of the new Cabinet by His Excellency. on 18 October and to the Parliament Portfolio Committee The meeting was meant to gain a better understanding of how on Industry and Commerce on 25 October 2018. The 2019 the Chamber can continue complementing the Ministry and to Budget input submissions focused on Boarder Management update the Minister on “Women in Enterprise Conference and Systems, fiscal deficit, corruption, SI 122, corruption and the tax Awards.” The Minister highlighted on various initiatives which the environment. Government is embarking on which include the setting up of an equity fund for women’s businesses and the Women Business ZNCC Courtesy Call to Honourable Minister of Higher and Expo set for 2019. The Minister invited ZNCC to participate in the Tertiary education, Science and Technology Development 2019 Women Business Expo and proposed that the Chamber can - Professor A Murwira have a share in malls that will be built across the country. ZNCC met with the Minister of Higher and Tertiary Education, Science and Technology Development Hon Professor Amon ZNCC Courtesy Call to the Minister of Industry and Murwira on Friday 14 September 2018. The visit was meant to Commerce – Hon. Mangaliso N Ndlovu gain a better understanding of how the Chamber can continue ZNCC met with the Minister Industry and Commerce Hon. complementing the Ministry as the Chamber aims to be a leader Mangaliso N Ndhlovu on Wednesday 19 September 2018, on a in business development in the national economy and a channel courtesy call visit. The visit was meant to give a brief on ZNCC of communication between business and the various authorities and to gain a better understanding on how the Chamber can in Zimbabwe. continue complementing the Ministry. The Minister was also briefed about the “Women in Enterprise Conference and Awards” The Minister highlighted on various initiatives which the in which he was the Guest of Honour. The Minister pointed out Government has embarked on which include, among others, the that the Ministry will continue facilitate Private Sector led growth Zimbabwe National Qualification Framework and development and that the Ministry will soon launch an Economic Blueprint. of physical infrastructure in tertiary institutions. The Chamber will continue to work with the Ministry collaborating with ZNCC meeting with Bureau Veritas Tertiary institutions on one of the 2018 Congress Resolutions ZNCC held a meeting with Bureau Veritas on Tuesday 25 which stipulates that “ZNCC should be a lead benefactor September and Wednesday 26 September 2018 to discuss of the incubation hubs in Universities as part of Enterprise and give feedback on the CBCA program. The visit by Bureau Development”. Veritas was part of the periodic monitoring and review exercise of the CBCA program. In the meeting, challenges being faced 2018 Seminar on Macroeconomic Development and by Members were presented and delay was cited as one of the Planning for Zimbabwe major challenges weighing on business operations as it is also ZNCC was part of the delegation that attended the Bilateral associated with storage costs. Seminar on Macroeconomic Development and Planning that was held from 19 August to 7 September 2018, in Beijing China. ZNCC engagement with ZIMRA on tax policy/environment The objective of the Seminar was to learn from the Chinese issues experience on how they have evolved from an underdeveloped On Tuesday 09 October a breakfast meeting with the Zimbabwe to an emerging economy during the past four decades. The Revenue Authority (Zimra) Commissioner General at Cresta Seminar was structured in such a way that participants would Sango, Harare, was held.” The breakfast meeting was meant to learn in a classroom environment from invited guest speakers provide an opportunity for Business to present challenges being as well as field visits to specific selected areas. The economic faced on tax issues so as to proffer solutions going forward. The trajectory which China has followed is more or less similar to the breakfast meeting came at time when Government introduced path which Zimbabwe is following. The economies share similar a 2% tax charge on every $1 transaction and some of the major key economic pillars ranging from Agriculture, Manufacturing, business concerns were on tax charges and processes. It was a Mining, Construction, Tourism and Service Provision. well-attended event which brought together entrepreneurs, business leaders, policy makers and the academia. Meanwhile, ZNCC Courtesy Call to the Minister of Women Affairs, the Commissioner General highlighted that Zimra has adopted a Community, Small and Medium Enterprise Development – new stance towards building confidence in taxpayers by using a Hon. Sithembiso G.G Nyoni (MP) 4Ps concept (People, Partnerships, Projects and Processes) which ZNCC met the Minister of Women Affairs, Community, Small and is yielding positive results. Medium Enterprise Development Hon. Sithembiso G.G Nyoni | ZNCC Annual Report 2018-2019 2018/2019 YEAR IN REVIEW 9

Australia Africa Council trade visit Zimbabwe-Anhui Economic and Trade Cooperation Forum ZNCC attended the Business Networking reception that was ZNCC attended the Zimbabwe-Anhui Economic and Trade held on Wednesday 17 October 2018, following a visit by the Cooperation forum on the 14th of November 2018 which saw a Australia Africa Council. The reception was hosted by Australian high-powered delegation from Anhui Province of China engaging Ambassador to Zimbabwe H. E Bronte Moules. The seminar the business community and having B2B engagements. The provided an opportunity to exchange experiences and views delegation’s visit was meant to explore and promote business on areas of cooperation between the two countries. ZNCC opportunities between Anhui Province and Zimbabwe in presented on Investment opportunities in Zimbabwe to the the fields of trade and investment in Manufacturing, Mining, Australia Delegation. Agriculture, Financial services, ICT, Construction, Transport, Energy, Infrastructure development. ZNCC Meeting with Georgia Ambassador The Chamber hosted His Excellency Beka Dvali – Georgia ZNCC President visit to Russia (14 to 17 January 2019) Ambassador to Zimbabwe on 23 October 2018. The visit by the ZNCC represented by ZNCC President Tamuka Macheka was Ambassador was meant to unlock investment opportunities in part of the delegation to Russia that was led by His Excellency Zimbabwe and to facilitate Joint Venture opportunities given - President E D Mnangagwa from 14 to 17 January 2019. ZNCC that Georgia is focusing on opening up new markets. The presented, during the Russia Zimbabwe Business forum, on meeting was also meant to discuss cooperation modalities the overall Business Environment in Zimbabwe and extended between Zimbabwe and Georgia Businesses and possibilities an invitation to the Russian Business Community to partner of having a Zimbabwe Business Delegation to Georgia and a Zimbabwean Businesses and establish Joint Ventures. The Russia Georgia Business Delegation to Zimbabwe. Zimbabwe Business Forum was attended by more than 100 Russian Business representatives. TRALAC Africa Continental Free Trade Area Workshop The forum also consisted of an MOU signing ceremony between ZNCC attended the AfCFTA workshop that was hosted by TRALAC ZNCC and the Chamber of Commerce and Industry of the Russian Law and held at Sun Square hotel, Cape Town in South Africa Federation (CCI of Russia) and the cooperation centred on: from 18th – 19th October 2018. This workshop took place as a follow up to the signing of the African Continental Free Trade Area Supporting Trade, investment and economic cooperation Agreement (AfCFTA) on the 21st March 2018 in Kigali, Rwanda by between the Russian Federation and the Republic of Zimbabwe 44 heads of States including Zimbabwe. The main agenda was to through: discuss the objective, designs and implementation of the AfCFTA. • Ongoing exchange of data and business information, The workshop provided an opportunity to exchange experiences • Assistance to business delegations exchange, and views on areas of rules of origins, ratification of the agreement, • Promotion of Business contacts between enterprises and and understanding the existing free trade areas among others. entrepreneurs of both countries, • Promotion of exhibition and fairs events conducted in the Business Review Conference Russian Federation and the Republic of Zimbabwe. The 2018 Business Review Conference was held on 06 December 2018 and it sought to evaluate how the country has progressed in terms of economic growth. The Conference was held under the ZNCC 2018 theme “Enterprise Development, Corporate Entrepreneurship and Sustainable Growth. His Excellency Cde E D Mnangagwa was the Guest of Honour and a delegation from NACCIMA graced the occasion. The conference was structured in a way to allow delegates to deliberate on how the country fared in 2018 and suggesting policy interventions.

ZNCC meeting Ghana Ambassador to Zimbabwe The Chamber hosted Ghanaian Ambassador to Zimbabwe Mr E. Odoi - Anim and The First Secretary (Political & Economic) Ms Bernice Boamah on 03 December 2018. The purpose of the visit by the Ambassador was to establish relations with the Embassy and also the Chamber of Commerce in Ghana so as to broaden ZNCC President- Tamuka Macheka and CCI of Russia President – Sergey Katyrin economic relations. The Ambassador also highlighted on the during the MOU signing ceremony need to re-establish a permanent joint commission.

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Zimra Stakeholder Engagement - Mutare ZNCC participated at the Zimra initiated review on the 2019 Budget on Taxes and Customs. Discussions centred on Ammendment of the Finance Act, Income Tax Act and Witholding Tax on contracts as well as customs issues.

ZNCC meeting with Korea Ambassador to Zimbabwe - 06 February 2019 The Chamber held a meeting with H E Mr Cho Jaichel – Ambassador of the Republic of Korea in Zimbabwe whose courtesy visit was meant to have an understanding on what Zimbabwe is currently experiencing and impact on Business and the Economy. Korea will be celebrating 25 years of Diplomatic relations with Zimbabwe. The Embassy is organising a Zim- Korea Export Seminar meant to explore opportunities for both Zimbabwe and Korea. Going forward, it was agreed that there is need to come up with a framework where there is collaboration between the ZNCC and the Chamber of Commerce of Korea. Egypt Investment Forum – Together for Africa ZNCC President attended the Egypt Investment Forum that was held in Cairo from 2 March to 3 March in Cairo. The Chamber had an opportunity to present on Trilateral Cooperation in Africa and that it is important in Africa for mutual benefit, and promotes partnership with various actors, which include traditional donors, multilateral agencies, private sector, academic institutions and CSOs. It brings ‘intermediate technology’ and ‘intermediate policy’ and meeting the financial resource needs for Africa. The Chamber also presented on Investment opportunities in Zimbabwe.

From left: Tamuka Macheka- ZNCC President, H E Mr Cho Jaichel – Ambassador of the Republic of Korea, Lyn Mukonoweshuro – ZNCC Enterprise Development Subcommittee Chairperson, Archford Dongo – ZNCC Mashonaland Vice President, Dr Khutula Sibanda – ZNCC Macroeconomics Subcommittee Chairperson

ZNCC meeting with Pakistan Embassy - 06 February 2019 The Chamber held a meeting with Mr Izzat Ahamed – Charge d ZNCC President – Mr Tamuka Macheka (second from right – seated) at the Affaires, Pakistan Embassy in Zimbabwe whose visit was meant Egypt Investment Forum to unlock investment opportunities in Zimbabwe to explore areas in which ZNCC and Pakistan Businesses can work together. Meeting with World Bank Officials (Wednesday Mr Izzat Ahamed indicated that they are encouraged by the 20 March 2019) Zimbabwe is Open for Business mantra and convinced by Vision 2030. It was also agreed in the meeting that there is need to The Chamber met with the World Bank Group Officials met on come up with a framework where there is collaboration between Wednesday 20 March 2019 to discuss on the current Business ZNCC and Pakistan Chamber of Commerce. operating environment. Some of the challenges being faced by business that were highlighted include; forex challenges, high cost of doing business, among others.

| ZNCC Annual Report 2018-2019 2018/2019 YEAR IN REVIEW 11

ZNCC Meeting with RBZ Governor unsustainable implicit taxation on our membership that import A no holds barred meeting was held between Zimbabwe National some raw materials or machinery hence formalizing RTGS Chamber of Commerce and RBZ Governor Dr John Mangudya on balances and Bond notes as a currency in order to allow the 07 June 2019. The meeting was meant to discuss on challenges market efficient pricing of scarce resources is commendable being faced by Business and how they can be addressed. ZNCC as this will allow market forces to determine the exchange rate was represented by ZNCC President - Mr Tamuka Macheka, ZNCC given that there is now room for interbank trading of Foreign CEO - Mr Christopher Mugaga, ZNCC Harare Branch Chairperson Currency - Mr Mike Kamungeremu and Dumisani Sibanda - Economist. • The liberalisation of foreign currency markets was in line with industry recommendations, demonstrating the • The Chamber is confident that such engagements will authorities’ willingness to engage and take on board their continue to provide a harmonious and productive working recommendations relationship between policy makers and industry. The • Liberalisation enhances competitiveness for local industry, Central Bank Governor acknowledged that it is important especially against imported substitute goods, through the to continue having quarterly engagements/meetings with exchange rate effect ZNCC • The Central Bank Governor expressed his delight on the Challenges and Questions role ZNCC is playing on Business Advocacy and lobbying for a conducive Business operating environment and • There has been erosion of household and enterprise balance acknowledged that the Chamber brand is now much sheets, and loss of consumer buying power, which has led to stronger than before depressed aggregate demand, corporate failures and potential • The Governor pledged to support ZNCC in Business recession/ stagflation development initiatives • Increased inflationary pressures – real feel inflation is beyond 100% • Banks are charging IMT tax on Nostro. It takes about a week for it to be reversed • Interbank transfer on Nostro not flowing smoothly • There are challenges in getting forex on the interbank market Example – City of Mutare • Not receiving/accessing the foreign currency allocations required for critical service delivery activities such as procurement of water treatment chemicals, pipeline materials for the very crucial Dangamvura water pipeline project and refuse compactors among other key service delivery equipment. Consequently, the City is forced to rely on suppliers who acquire their foreign currency on the black market thereby stalling the City’s operations • ZNCC questioned the Fiscal Surpluses being claimed by the Government. Expenditure for the last quarter of 2018 - there is ZNCC Meeting with RBZ Governor; from left Mr Tamuka Macheka – ZNCC no way that December expenditure could have been $100.1m President, Mr Mike Kamungeremu – ZNCC Harare Branch Chairperson, Dr John from about $600.7m in October and $686.4m in November Mangudya – RBZ Governor, Mr Christopher Mugaga – ZNCC CEO 2018 • Money Supply growth – RBZ should not fuel money supply growth through funding Government expenditure Positives from the Monetary Policy • How is Government going to pay the Eskom bill? • What is the target for Broad Money supply? • 2019 Monetary Policy somewhat provided guidance and tools • Legacy debt is still an issue affecting Zimbabwe Businesses. to deal with the distorted exchange rate system. It presented How is it going to be addressed? policies aimed at establishing a trading mechanism of RTGS • On contracts that were running before February 2019 SI33 balances and bond notes with international currencies talks about conversions but there has not been consistency. through establishing an inter-bank foreign exchange market What is the RBZ position on this? to restore domestic competitiveness and promote growth • If Government is recording a surplus why is it not going on the • Parity of the US$ and Bond Note had been imposing an interbank market to source foreign currency?

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Recommendations liberalised the exchange rate. The 1:1 exchange rate was for confidence building – Paramount moved from employing 900 • Transparency - RBZ should be clear on the operations of the people to 3,000 people over 18 months because of the export Interbank market and must publish daily updates on volumes incentive which was being offered being traded on the platform • RTGS balances have gone down to 1.2 billion from 2.2 billion in • The requirement to liquidate foreign currency receipts within March 2019. Broad money has gone down 30 days is adversely affecting players whose projects are of a • The economy has cartels, smugglers, side marketing, long term nature. This is putting pressure on exporters to utilise polarisation of the economy and sabotaging people their receipts unnecessarily in order to somehow preserve • If the RBZ had not drawn $500m the rates could have gone up value. There is need to increase the surrender requirements – it was measure to address the exchange rate from ballooning from the current 30 days period to 90 days • There is need for confidence building measures • There is need for Policy Consistency and Coordination – • Countries that have liberalised the exchange rate have the Government departments are quoting US dollars but on the support from international institutions but for Zimbabwe it is other hand Government continues to say we should embrace different because there is no support from the international RTGS dollars institutions • Afreximbank drawdown creates a crisis of expectations which • On legacy debt, Businesses should register with their Banks then feeds into speculation and other nefarious activities. and the Central Bank will give measures and options. RBZ will RBZ should just inject funds into the market without need for soon give a road map of how this will be addressed politics spin • SI33 is clear that the RTGS is the mode of exchange hence • On Deposit Protection Corporation (DPC) proposal to charge there is need for consistency nostro accounts - RBZ must carry the liability not DPC • On settling the Eskom Bill – we are going to be giving a • Export retention ratios should be moved to 80% for Gold and proposal to settle the bill Platinum Miners from the current 55% and 50% • Proposed Advocacy issues that the Chamber should embark • We are aware that the Monetary Policy was expansionary but on; there is need for clarity in terms of the Interest rates. We are u There is need to have confidence Building Measures aware that RBZ has communicated with banks on interest (Policy Consistency and Dialogue are important) rates, not officially, but this needs to be clear u There is need for a framework of how to deal with • RBZ should liase with the Minister of Finance for an open indiscipline in the market – corruption, smuggling – tender for Treasury Bills. Treasury Bills should be traded on an there is need to ensure that laws are followed open market like other instruments • There is an irresistible path to dollarisation. Continuation of multicurrency, though necessary in order to maintain BUSINESS MISSIONS confidence, and possibly stabilise the FX markets, it is creating transacting challenges, especially for conversion rates from Zimbabwe – Belarus Business Delegation (22 – RTGS$ to other currencies. It would be ideal to gradually 28 April 2019) reduce the basket of currencies, to the major currencies, e.g. In an effort to foster private sector relations, the Chamber hosted ZAR, Euro and USD a Belarus Business Delegation during the ZITF week from 22 April • There is need for authorities to rebuild public confidence given to 28 April 2019. the erosion of households and corporate balance sheets. This entails improving the frequency, transparency and timely The delegation had a courtesy call meeting with H E Cde E D communication of key macro-economic indicators such Mnangagwa, Deputy Minister of Local Government, Ministry of as level of government debt, status of RBZ overdraft facility, Health and the Ministry of Transport. A Zimbabwe Belarus Business monthly government finances (net position), money supply forum was held on 25 April 2019 at Holiday Inn Bulawayo where growth etc. Some of the RBZ data is not published timeously Vice President Dr C G D N Chiwenga was the Guest of Honour. (data is 6 months behind). Such a scenario is important in The forum was meant to discuss on Investment opportunities in allowing economic agents to monitor progress and assess Zimbabwe and presented an opportunity to discuss cooperation whether there is coherence between the Fiscal and Monetary modalities for purposes of allowing a free flow of business in the Policy measures region for the benefit of the business community.

Response from the RBZ Governor

• Confidence is the Challenge – Policies are good and we have

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SMEs into the competitive supply chain network of corporate companies and key regional value chains. The goal of the project is to build inclusive growth and sustainability of SMEs, and to contribute to overall improvement of intra-trade development in the COMESA Region.

The second phase of the workshop will be held in August (date and venue to be advised) and this two-day buyer-seller platform will be organized to facilitate interaction and dialogue between the SMEs and key buyers in the country. The sellers will hold a mini exhibition showcasing their products to the buyers and the buyers will also have an opportunity to give guidance on their purchasing requirements and checklists.

Vice President of Zimbabwe, Rtd. Gen. CGDN Chiwenga giving a keynote address during the forum

• The Zimbabwe National Chamber of Commerce signed an MoU with the Belarus Chamber of Commerce and Industry in an effort to establish trade and partnership relations between companies of the two countries.

ZNCC BCC I MOU signing ceremony

ZNCC CBC Training and Capacity Building Workshop on Food Safety and Standards for SMEs

The Chamber, in partnership with the Comesa Business Council (CBC) successfully convened the CBC Local Sourcing for Partnerships Training and Capacity Building Workshop for the SMEs on food safety and standards to promote Local Sourcing Partnerships. The training workshop was held from the 15th to the 17th of May 2019, Monomotapa Hotel, Harare. The Local Sourcing for Partnerships (LSP) focuses on strengthening the inclusiveness of SMEs into value chains at firm and sectoral level in Africa. This is done through training on the Global Food Safety Management Systems, and secondly through facilitating the integration of the ZNCC Annual Report 2018-2019 | 2018/2019 YEAR IN REVIEW 14

INTRA AFRICA TRADE FAIR (IATF 2018) ZNCC AWARDS The Zimbabwe National Chamber of Commerce (ZNCC) participated at the Inaugural Intra-African Trade Fair 2018, which took place in Cairo, Egypt from the 11-17th of December 2018, which was promoted by Afreximbank in collaboration with the African Union and ran under the theme, Create, Connect, Deliver and Measure. The fairs aim was to provide a unique platform for promoting Intra African Trade and facilitating information exchange in the context of sustainably implementing the African Continental Free Trade Agreement. The exhibition had 1100 exhibitors from countries across Africa. The Zimbabwe delegation was coordinated/ headed by Zimtrade and led by the Minister of Industry & Commerce. Over 20 Zimbabwean Exhibitors took part and included businesses, business representative organizations and government departments.

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2018/2019 YEAR IN REVIEW

ZNCC held the 2018 Annual Congress at Elephant Hills resort, u ZNCC should push for the setting up of the Sovereign Victoria Falls from the 27th to the 29th of June 2018 under the Wealth Fund theme – “Enterprise Development, Corporate Entrepreneurship u ZNCC to lobby for the promotion of an auction market and Sustainable Growth.” The resolutions that were raised from where Treasury Bills and other financial securities can be the 2018 Annual Congress are as follows:- traded u ZNCC to lobby for the operationalization of the Sovereign Infrastructure Wealth Fund u ZNCC must lobby to Government so that it increases its annual allocation towards infrastructure development Information Dissemination projects to at least 3% of GDP given that Zimbabwe allocates u ZNCC to lobby for the establishment of an apex body (BCZ) around 1% of GDP annually towards infrastructure projects which will represent Business interests at both national and while other countries in the region allocate as much as 7% regional level (SADC, COMESA) of their GDP annually towards infrastructure.

Trade u ZNCC must engage Government on the proposal for the country to host the CFTA Secretariat because this comes with incremental benefits u ZNCC should organise a business delegation to Foodex in Japan in 2019 u ZNCC to host the 2020 Intra Africa Trade Fair

Competitiveness u ZNCC should engage Standards Association of Zimbabwe and Bureau Veritas so as to encourage members on quality standards ZNCC for the production of quality goods u ZNCC should interrogate on the Japan success factors so as to come up with recommendations on what can be adopted by the Government u ZNCC must interrogate how business can make use of location intelligence -Geospatial Market for the benefit of the Business community u ZNCC should look at the Japan model for international best practise, on water reticulation systems so as to proffer solutions u ZNCC should be much involved in the formulation of the Industrialisation strategy

Collaboration with Tertiary Institutions u ZNCC should be a lead benefactor of the incubation hubs in Universities as part of enterprise development.

Industry Challenges u ZNCC must engage Government to adopt a cash budgeting system u ZNCC must engage ZIMRA on corruption, systems failures (ASYCUDA and E-system), tax environment and Boarder Management challenges u ZNCC must engage RBZ on the obtaining currency framework

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The Zimbabwe National Chamber of Commerce (ZNCC) An effi cient tax administration makes it easier for businesses to commissioned this study with the view of exploring the tax system in become formally registered, thereby expanding the tax base and Zimbabwe and interrogating the drivers of increased on compliance increasing tax revenues. A tax administration that is unfair and and how business can be relieved of the high tax burden by drawing imposes uneven tax rates will results in widespread tax evasion lessons from other countries. The study employed a mixed methods and lower-than-expected tax revenue. In order to encourage approach which included document reviews and a mini survey to compliance there is need to keep the tax rules as simple as possible solicit for perceptions of business operators on the challenges they as a complicated tax system is associated with high tax evasion. are facing related to the tax policy regime in Zimbabwe. The Constitution of Zimbabwe requires the burden of taxation to Taxation matters are critical for the survival of both government be shared fairly among citizens of the country. However, contrary and the private sector. According to the Peacock-Wiseman (1961) to the dictates of the supreme law, the tax administration system Hypothesis, the rise in public expenditure greatly depends on in Zimbabwe is perceived as being unfair and complicated, revenue collection and thus there exists a big gap between the characterized by ineffi ciencies which includes; a weak legal public expectations about public expenditure and the tolerance framework to tame the tax defaulters, inoperability of tax systems, level of taxation . Governments requires tax revenues to fi nance the systems downtime, punitive penalty system and multiple tax provision of public services, thus an ever increasing public services revenue heads and payments with varying levels of bureaucracy demand requires that government increase tax revenue collection and absence of incentives to motivate compliant tax payers as which may not be popular with taxpayers. well as defaulters to remit their tax dues. These challenges in the tax administration system have not been supportive of business to On the other hand, the taxes fi rms are liable to pay matter for comply with their tax obligations. the continued business survival and growth. In instances where businesses face high tax they are more inclined to opt out of the Furthermore, the multiplicity of tax revenue heads and bureaucratic formal sector. Thus high tax rates are associated with fewer formal process in fi lling tax returns also present challenges to tax payers, businesses and lower private investment. According to Romer, and this is perceived by business as contributing to the high levels C et.al (2010) a 10-percentage point increase in the eff ective of tax non-compliance due to errors of commission and omission. corporate income tax rate is associated with a reduction in the ratio According to the 2019 doing business report, Zimbabwe is ranked of investment to GDP of up to 2 percentage points and a decrease in 145 out 190 in the ease of paying taxes. It takes an estimated 51 the business entry rate of about 1 percentage point. A tax increase payments for taxpayers in Zimbabwe to comply with the countries equivalent to 1% of GDP reduces output over the next three tax obligations against a sub Saharan average of 37.4.Furthermore it years by nearly 3% .Thus, maintaining tax rates within reasonable takes an estimated 242 hours per year to comply with 3 major taxes levels encourages the development of the private sector and against an average of 280.6 hours for Sub Saharan African (Table 1). the formalization of informal enterprises and help contribute to economic growth and employment but do not add signifi cantly to Table 1: Zimbabwe’s Performance in the 2019 Doing Business tax revenue .The Laff er curve attempts to depict the relationship Paying taxes Sub Index between the tax rates and tax revenue. It shows that as tax rates rise, tax revenue will increase up to a maximum level which also represents the optimal tax rate. Thereafter if taxes continue to rise beyond the optimal tax rates, there will be a clear decline in tax revenue as economic activities decline (Figure 1).

Source: 2019 World Bank Doing Business

Figure 1: Laff er Curve Theory of Taxation Thus the increased administrative burden, bureaucracy and other associated economic challenges have resulted in increased cost Optimal tax rate

t* of compliance to the private sector. High tax compliance costs are TR associated with larger informal sectors, more corruption and less investment. According to Braunerhjelm P et.al. (2014), a study of

Tax revenue 118 economies over six years found that a 10% reduction in the tax administrative burden as measured by the number of tax payments per year and the time required to pay taxes led to a 3% increase in annual business entry rates6 .

6Taxes, tax administrative burdens and new fi rm formation, Tax rate t https://onlinelibrary.wiley.com/doi/abs/10.1111/kykl.12040 | 08ZNCC | ZNCCAnnual 2018 Report TAX SURVEY2018-2019

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According to ZIMRA, there has been an increase in the stock of unpaid Distribution of respondents by location taxes and this shows increasing non-compliance by taxpayers. Between the period 2014 and 2017, the stock of outstanding tax debt rose from USD 821 million in 2014 to an estimated USD 3.5 billion at the end of 2017; this amount is enough to finance at least 60% of the announced 2018 National Budget. The growth in the stock of tax debt has largely been driven by non-payment of withheld VAT on local sales and Corporate Tax which rose from USD239 million and USD 189 million in 2014 to USD 1.3 billion and USD 1.46 billion in 2017 respectively (Figure 2).The increasing stock of tax debts highlights an inherent challenge with the country’s tax administration system that is making it difficult for businesses to Thus convenience sampling used and respondents were comply with their tax obligations interviewed based on their willingness to respond and furthermore the researchers made use of a structured questionnaire with both Figure 2: Growth in stock of tax debt: 2014-17 open ended and closed questions will be prepared to target the different categories of respondents as well as reducing bias in the in 4,000 4,000

3,500 3,500 the results given the sensitivity around the issues of taxation. 3,000 1,297 3,000 1,149

2,500 2,500 1.3. Outline of the rest of the study 2,000 2,000 645

USD million USD 1,462 1,500 3,583

1,000 USD million 1,500 Section 2 provides an overview of Zimbabwe’s tax system while 968 239 500 189 824 1,000 section 3 outlines opportunities for a supportive tax regime 393 0 500 in Zimbabwe. Section 4 of the paper shares other countries’ 2014 2015 2016 2017 821 PAYE Corporate Income Tax VAT on Local Sales 0 experiences with regards to taxes and business viability. Section 5 2014 2015 2016 2017 Total summarises field findings and section 6 concludes the paper. Source: Zimbabwe Revenue Authority 2. Overview of Zimbabwe’s Tax system 1.1. Objectives and justification of the study 2.1. Trends in the Performance Tax Revenue collection by The following were the objectives of this study: tax head a. To capture concerns regarding tax issues b. To gauge the macroeconomic Effects of the Zimbabwe Overall revenue performance Tax Policy and to gauge tax tolerance and compliance and identify areas which need to be addressed to enhance tax Zimbabwe registered a steady growth in tax revenue rising from compliance $988.5 million in 2009 to $3.6 billion in 2014 as the economy c. To gauge the extent of the contribution of the tax recovered from deep economic crisis characterized by poor regime to the existing economy performance of key economic sectors, hyper inflationary era of d Research on other regional countries tax system and draw 2005 to 2008; massive de-industrialisation, very low capacity lessons for Zimbabwe utilization of 36% in 2008 and job losses, among other factors. Revenue collection however dropped to $3.2 billion in 2015 before plunging further to $3.23 billion in 2016. Tax revenues however 1.2. Methodology notably increased to $3.75 billion in 2017 on the back of rigorous enhancement measures, tireless efforts by ZIMRA to stamp For the purpose of this survey, the researchers targeted established corruption as well as improved compliance by tax payers (ZIMRA, businesses using convenience sampling as respondents for the 2017). survey. The researchers targeted a minimum of 100 respondents but a total of 86 Businesses in Harare, Bulawayo, Mutare and Gweru The country’s tax structure is currently dominated by indirect taxes, ended up being interviewed from the four locations with Harare notably import duties and excise duties. This has been mainly accounting for 33% of respondents followed by Bulawayo and explained by the shrinking revenue base of the low income country. Gweru with 29% and 28% respectively. The low response rate of 86% Zimbabwe’s major economic challenges remained unresolved and sample size highlights the sensitivity of divulging information during the period under review. Business community continues to pertaining to paying taxes within the businesses community as face high cost of doing business, coupled with erratic supply of key most businesses were not keen to discuss tax matters. enablers such as power. Access to affordable lines of credit to boost production has not been easy. ZNCC Annual Report 2018-2019 | ZNCC 2018 TAX SURVEY | 09 ZNCC 2018 TAX SURVEY 18

Tax evasion by business community (see section 2.2 for details) Further, the size of the informal sector in Africa limits the • Too many tax rates that are very high mobilisation of tax revenue (African Economic Outlook, 2017). • 60.6% of the economy is informalised and the bulk of the This is particularly true in the case of Zimbabwe where 60.6% of its economic agencies are not in the ZIMRA tax net economy is informalised (Medina and Schneider, 2018). Although • Late submissions of tax dues by business community as most new taxes such as the presumption tax and the electronic transfer companies are operating in a survival mode tax have recently been introduced to net in the informal sector, the current tax policies seem to be more inclined towards taxing the Leakages in the tax system formal sector and few policies have been put in place to net in the • Porous borders informal sector players where most of the economic activities are • Corruption by ZIMRA officials andtax defaulters from the taking place. Moreso there have been low levels of compliance on business community presumptive taxes by the informal sector (Grant Thornton, 2016). There are a number of reasons explaining why this is the case. Some A culture of not paying taxes of them include the fact that most of the informal traders are not • Lack of adequate tax education among the business community registered, transact in cash, are not knowledgeable about their • non transparency on the detailed utilisation of remitted taxes presumptive tax obligation, do not file returns and there have been discourages business community to continue remitting theur no follow ups by the revenue authority (Dalu et al, 2013). tax dues to ZIMRA • business perceives ZIMRA as a policing agent solely meant to Too many taxes are a burden to business collect tax and not one that promotes business development in Zimbabwe The general business concern about the Zimbabwe’s tax system • business perceives the tax system as burdensome and costly to is that it has numerous tax heads that are applicable to business business given the prevailing economic conditions and investment and these exert a huge tax burden on them. This • no incentives to offered to complying companies coupled with cumbersome investment approvals increase the cost of doing business thereby scaring away investors who could 2.2. Challenges with the Current Policies Tax Policies and contribute immensely to government’s tax revenue. In addition, the Legislative Frameworks current marginal tax rates are high thereby promoting tax evasion by tax payers. Evidence from Greece suggests that tax compliance The government of Zimbabwe is empowered by section 298 of rates rise as tax rates fall, with corporate tax revenue increasing the Constitution of Zimbabwe to collect taxes to for the purposes to 5% of Gross Domestic Product (GDP) from 4% after the rate of of financing national development; furthermore the constitution company tax was lowered in 20058. states that the burden of taxation must be shared fairly among citizens of the country. Thus, the legal framework governing the Lack of an efficient tax regime and cumbersome investment taxation in Zimbabwe is enshrined in the Constitution of Zimbabwe, approval processes add to the already high cost of doing business various Acts of Parliament and as well as statutory instruments. The in Zimbabwe and militate against Government effort to attract main taxes are enacted by the following Acts of Parliament: Income FDI much needed to for generating economic growth and hence Tax Act; Finance Act; Capital Gains Tax Act ; Value Added Tax Act increased tax base. ; Customs and Excise Act and the Estate Duties Act. These Acts are also supported by various statutory instruments. It is ZIMRA’s Restrictive import management programme constricts tax revenue mandate through the Revenue Authority Act (Chapter 23:16) to collection capacity assess, collect and account for revenue on behalf of government. Zimbabwe has been implementing a restrictive import management Narrow tax base programme that saw revenue from customs duty declining from $497.6million in 2013 to $295.8 million in 2017 (see Figure 1) thereby Zimbabwe presently operates on a source-based tax system limiting revenue collection capacity through this tax head. although plans are underway to move to a residence based taxation system. This means that income from a source within, or A near optimal tax collection capacity weighed down by leakages deemed to be within Zimbabwe will be subject to tax in Zimbabwe Zimbabwe’s tax collection capacity is generally highly rated and unless a specific exemption is available7 . The implication of the the collection agency has been on record surpassed the target set present tax system is that it is a bit narrower as it leaves out taxable by the Ministry of Finance between 2010 and 2017. Imam (2018) Zimbabweans who are resident outside the country. This therefore highlighted that Zimbabwe’s tax revenue to GDP fell from 22.4% in puts more pressure on government to increase the tax burden on 2013 to 20.6% in 2017 with public expenditure increasing by 10.7% the already squeezed formal tax payers. from 26.5% to 37.2% over the same period.

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Another measure to assess how the country is fairing in its tax for defaulters who came forward to make payment plans but this collection is called tax effort. It is calculated by dividing its actual tax approach was not as successful as private sector thought this was a share by an estimate of how much tax the country should be able trap for ZIMRA to net in on defaulters hence a low success rate was to collect given the structural characteristics of its economy. A value registered. of 1 means the country was able to collect what is exactly within its capacity. Langford and Ohlenburg (2016) revealed that Zimbabwe’s In addition there is a weak legislative oversight and the public audit tax effort was 0.90 relatively higher than its regional comparators functions that further compromise the revenue collection capacity like South Africa, Kenya and Mozambique that scored 0.77, 0.61 of ZIMRA. and 0.78 respectively. This implies that there is little space available for Zimbabwe to increase domestic resource mobilization through Tax system does not motivate tax payers to remit their dues increased taxes hence the need for more innovative measures that support the growth of SMEs. In view of this constraint, IMF (2017) There is no incentive to motivate those that are compliant. In fact, recommended for Zimbabwe to phase out income tax and capital the current tax regime is mean on tax breaks and incentives limiting gains exemptions, and restricting VAT exemptions to those critical them mostly to prospective investors in special economic zones. to low-income households as measures to buttress revenues. The system is not supportive enough to warrant major shifts in prices, investment or economic growth. The optimal revenue collection is still structurally and operationally compromised by loopholes in income tax frameworks, lack of Box 1: Findings from the field on the Business concerns about transparency in revenue collection and remittance processes, and, the Current Policies Tax Policies and Legislative Frameworks corruption within institutions designated as receivers of revenue (Zhou and Mahikeni, 2013). The weak mining fiscal regime is a The general view from the interviewees is that the current tax particular case in point. The Income Tax Act provides for multiple system is characterised by too many tax heads with very high tax rebates, concessions and exemptions which leave most major tax rates compared to other countries. It does not promote mining companies on tax holidays and in this way exempting them compliance and investment but rather promotes tax evasion, from paying duty as they can technically declare losses and carry defaults, informalisation of business and company closure. The over until they close (Zhou and Madhikeni, 2013). system is viewed as penalizing the complying formal businesses the most. Further, ZIMRA’s efforts to collect tax revenue has been compromised by the porous border posts and weak infrastructure Most of the interviewees regarded the system as punitive given framework to deal with smuggling, under invoicing and corruption operating environment as it increases cost of doing business by customs officials all impacting on the level of revenues that rendering local products uncompetitive. In other world the could have accrued to government. This therefore puts pressure punitive taxes threaten the viability of enterprises. It further on government to continue taxing the formal businesses who are squeezes businesses and individuals of their disposable income already overburdened. and is infested by too high penalties. On the other hand the tax system treats small and large companies alike hence stifles Weak legal framework to tame the tax defaulters growth particularly of smaller companies. This was particularly with reference to income tax which the business community As at 31 May 2018, ZIMRA was owed a total of $4.3 billion by tax said is too heavy for SMES and treats them the same as with payers with 51% being the principal and the balance constituting big corporates. It is seen as unsupportive of startup businesses. penalties and interests. This debt dates back to 2009 and generally Further, the system is geared more on tax collection than confirms the magnitude of the burden on businesses and tax payers. industry growth. Over 4 000 big businesses are estimated to be operating without registering for tax purposes with ZIMRA (Transitional Stabilisation The other concern was with regards to the invoice based VAT Prgramme, 2018). The major challenge ZIMRA is facing is the legal system used by ZIMRA audit team to establish tax debt owing. instrument of forcing the tax payers to honour their dues. The tax This approach bills VAT debts regardless of whether the raised man can only garnish the accounts of defaulters and charging huge invoices were later paid or not. Further, the invoice based VAT penalties but cannot legally hold defaulters accountable in cases system on supply to government is paid after 6mthsbut ZIMRA where they close shop and open new companies. While ZIMRA wants the VAT to be remitted in 1month. Thus there is little time has been given the powers to charge penalties through Statutory allowable for VAT payment. The other issue is that tax policy Instrument 97 of 2013 on Revenue Authority (Civil Penalty for Late formulation in Zimbabwe is done largely without consultation. Submission of Returns) Regulation, 2013; garnishing accounts This was particularly with regards to the 2% electronic transaction and charging penalties have seriously impacted on the viability tax which the business said erodes buying power of customers of affected defaulters as some eventually closed shop or were and reduces company capital. Further business perceives that left struggling to stay afloat. ZIMRA embarked on tax amnesty there is too much corruption in the current tax system.

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There is lack of enforcement on informal sector hence interviewers Automated System for Customs Data (ASYCUDA) system but these regarded it as selective. The general business perception is that do not interface with each other. This has resulted in increased ZIMRA’s inability to charge informal sector is compensated by cost of compliance for businesses, as taxpayers re-file tax related charging formal sector. The system has failed to bring in the informal documents to comply with obligations duplicating their efforts economy which could contribute immensely to tax revenue instead of tax authorities retrieving the same documents within the generation. They regard the costs of compliance too high and integrated system. tedious. Moreso, there are no incentives granted for full compliance rather the existing laws extend periodic relief to defaulters. Furthermore, the ASYCUDA World system has constantly been experiencing challenges resulting in delays in the clearance of 2.3. Challenges with the Tax Administration System goods and traffic at the country’s ports of entry. ZIMRA has to some extent put measures to mitigate these challenges to minimize the A tax administration system should be effective in ensuring delays in movement of goods and persons at the ports of entry.. high compliance by taxpayers and efficiency by lowering These were not enough to stem the loss of revenue to the revenue administrative costs relative to the amount of revenue collected. authority as well as inconveniencing businesses11 with regards to Good tax administration requires strong technical capacity by delays in production, loss of perishables goods as well as increased the administrative agency but also well-designed taxes. The lead time in delivery of orders. The e-service for electronic filing administrative agency should be able to identify and evaluate have also been experiencing challenges, resulting in tax payers the effects of both current tax policies and tax policies under losing the convenience of filling remotely12 consideration, be able to simplify the current tax system if needed, within the economic and political spectrum, be aware of any law The Zimbabwean economy has largely been informalising hence changes and emerging tax avoidance practices, and maintain a concentration of tax measures largely targeting the formal sector connection between the rule of law and tax administration . though the use of direct tax instruments. The growing the informal sector in Zimbabwe is contributing little to the fiscus despite having Tax laws and regulations in Zimbabwe are administered by the a simplified presumptive tax system in place. Furthermore, taxation Commissioner- General heads the Zimbabwe Revenue Authority of the informal sector is labour-intensive with potentially low (ZIMRA). Thus, ZIMRA is responsible for administering the tax yields. The informal sector reliance on cash in settling transactions system in Zimbabwe. There are formalities that need to be observed accompanied by improper record keeping makes it difficult to before one is fully deemed compliant with the country’s tax laws. administer taxes as this reduces the ability of the revenue authority However these formalities have presented obstacles for businesses to audit transactions. with regards to paying taxes, according to the 2016 World Bank Enterprise survey 25.2% of firms in the manufacturing sector A comparison of Zimbabwe’s tax regime against selected African highlighted that the country’s tax rates are a major constraint to countries reveals that tax rates, type of tax and collection methods their business operations, whilst 26.2% highlighted that the tax vary significantly between countries. Thus, in the determination of administration system is a hindrance to business (Table 2). the ‘right tax’ for economic agents there is need to strike a balance between a sustainable return for the government and a ‘reasonable’ Table 2: Obstacles in paying taxes in Zimbabwe profit for businesses. Below is a description of the administrative process for three major taxes payable by businesses in Zimbabwe namely; Corporate Income tax, Pay As You Earn (PAYE) and VAT.

Payment of Income Taxes

For entities with annual turnover of $240 000 and above ZIMRA allows

Source: Enterprise Surveys, the World Bank. (2016) 10 them to submit annual self-assessment returns due on the 30th of April of the following year after the tax year end. The tax year runs Challenges in the Zimbabwe tax administration system includes; from January to December. Payment of income tax is done quarterly, weak legal framework to tame the tax defaulters, inoperability first quarter businesses pay 10% of estimated income and payment of tax systems, systems downtime, punitive penalty system and is due in March of every year; 2nd quarter businesses pay 25% due in multiple tax revenue heads and payments with varying levels of June; 3rd quarter pay 30% due in September; and the last payment bureaucracy and absence of incentives to motivate compliant tax of 35% is due in December. Table 3 below summaries the time and payers as well as defaulters to remit their dues. frequency of complying with Zimbabwe’s Income tax obligation.

Inoperability of the tax and customs information communication 10http://www.enterprisesurveys.org/data/exploreeconomies/2016/ technology systems used by ZIMRA. For example, in tax and revenue zimbabwe#regulations-and-taxes 11 administration ZIMRA uses the Systems Application Product (SAP) http://www.zimra.co.zw/index.php?option=com_content&view=article&id=2686:asy cuda-world-challenges&catid=5:notice&Itemid=7 system whilst for customs administration it makes use of the 12https://www.techzim.co.zw/2017/12/zimra-e-services/ | ZNCC12 | ZNCCAnnual 2018 Report TAX 2018-2019SURVEY ZNCC 2018 TAX SURVEY 21

Moreso, the country dominantly used the US dollar that continued 2011 (ZIMRA,2011). appreciating against currencies of major trading partners like South • High cost of doing business. The costs of the key enablers Africa. These factors among others eroded the country’s export such as power, water, communications are generally higher competitiveness against its regional counterparts. Zimbabwe’s in Zimbabwe as compared to other countries in the region. In export basket is dominated by primary commodities vulnerable addition labour costs and the general cost of compliance with to market fluctuations. Export performance has therefore been multiple regulatory institutions is also high. This high cost affected by falling commodity prices on the international market environment renders Zimbabwean products less competitive. and thus could not mobilise the much needed financial resources This further limits profitability of local companies and hence for the domestic market. These economic variables negatively their ability to pay tax. affected profitability of companies and clients’ ability to pay debts, • Limited affordable lines of credit as the country continues to be resulting in generally low trends of revenue collection (ZIMRA, isolated from the international financiers; 2015). Heavy reliance on indirect taxes is however, not in line with • Foreign currency shortages negatively affecting companies international best practice which calls for direct taxes as a major production capacity and the importation of goods that attract source for economic development. VAT • Low disposable income by the general public negatively Tax performance by revenue head affected consumer spending on goods that attract VAT

This section focuses on the major tax revenue heads namely ZIMRA Tax Policy and Management system individual taxes, company taxes, value added tax (VAT), customs • It has been noted that high taxes on labour income depress duty and excise duty as illustrated in Figure 3. labour supply and can reduce firms’ labour demand by driving up the cost of labour (due to high employers’ contributions or Figure 3: Trends in Tax Revenue Performance between 2010 payroll taxes(Chigumira et al, 2018). and 2017 • The increased usage of plastic money enhanced revenue

1,200,000,000.00 collections and compliance in addition to the Tax Management System initiative, audits, investigations and debt recoveries 1,000,000,000.00 employed by ZIMRA (ZIMRA, 2017). In addition, continued 800,000,000.00 importation of good that attract VAT contributed to the 600,000,000.00 performance of the tax head. 400,000,000.00

200,000,000.00 Trade policy interventions implemented by government 0.00 • In 2016, revenue forgone through trade agreements Individual Companies Value Customs Excise duty Other taxes taxes Added Tax Duty amounted to US$642.39 million, while US$215.91 million (VAT) was forgone through rebates and suspensions (ZIMRA, 2016). 2010 2011 2012 2013 2014 2015 2016 2017 Implementation of Import Management Programme that Source: Ministry of Finance and Economic Development restricted the flow of imports into the country e.g. through Statutory Instrument 64 of 2016 reduced imports of goods VAT was the biggest contributor of tax revenue followed by which attract customs duty (ZIMRA, 2016). individual taxes, excise duty company taxes and customs. The major factors that explain this revenue performance summarized Increasing import bill and expansion of list of excisable products in Figure 1 includes • huge imports of goods that are excisable such as fuel. Major contributors to the tax head in 2017 were fuel and beer. Excise Harsh macro-economic conditions duty on fuel was 78.62% while that on beer and airtime were 6.96% and 8.09% respectively (ZIMRA, 2017). • cash shortages, • low industrial capacity utilisation that fell from 57.2% in 2011 • Further, excise duty on diesel and petrol was increased in 2012 to 34.3% in 2015 before it somewhat increased to 45.1% in and 2013 further increasing collections (ZIMRA, 2012 and 2017 (CZI various manufacturing sector survey reports). The 2013). More so other products like airtime were also added low industrial capacity utilisation reduced company production onto excisable products. In 2017, sustained paraffin imports and hence profitability. It further resulted in low levels of which now attract duty and the Electronic Cargo Tracking production on goods that attract VAT. All these negatively System, which greatly reduced transit fraud further explain the impacted on companies’ ability to pay corporate tax. The other performance of the head (ZIMRA, 2017). factor that contributed to the ever increasing excise duty collections include increased capacity utilisation of companies that produced excisable products eg 85% in 2010 to 93% during

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Table 3: Time and frequency of compliance with Corporate Payment of PAYE Income Tax obligations Employers are obliged by the Income Tax Act [Chapter 23:06] to withhold and submit returns of Pay as You Earn (PAYE) tax in respect of their employees. PAYE is a method of paying Income Tax on remuneration. The employer deducts tax from salaries or pension

earnings before paying the net salary or pension. The Income Tax Source: World Bank Doing Business Act specifies what elements of an employee’s remuneration or earnings are subject to tax and at what rate of tax. It also deals with A regional comparison of corporate income tax rates in selected what income is exempt from tax and what deductions are allowed African countries reveals that most countries apply a standard from these earnings, prior to tax being calculated. national rate of between 15% and 33% which is in line with Zimbabwe’s corporate tax rate of 25%. Considering tax levels An official tax table shows on an escalating scale basis, (i.e. the for 2017, Namibia has the highest corporate income tax at 32%, higher your earnings, the greater percentage tax you pay on each followed by South Africa (28%), Botswana (22%).Since 2013 tax bracket of earnings) how different remuneration levels are taxed. levels have remained constant for countries such as Mauritius, The tax-free threshold for individual taxpayers was set at US$350.00 South Africa, Botswana, as well as Zimbabwe (Table 4). per month with effect from 1st January 2019.The due date for the submission of PAYE returns and payment is the 10th of the following Table 4: Country comparison of corporate income tax rates (%) month15 (2013-2018) Regional comparison of personal income tax rates shows that Mauritius has the lowest marginal personal income tax rate at 15% levied to individuals since 2010, following a reduction from 30% to 22.5% from 2006 to 2007, this is followed by Botswana whose marginal tax rate has been stagnant rate of 25% since 2010, whilst Zimbabwe has the highest marginal personal income tax of around Source: KPMG14 51.5% (Table 5).

Box 2 : Findings from Fieldwork on current tax administration Table 5: Marginal tax rates on Personal Income in selected system countries • Respondents to the survey raised the following concerns with regards to the tax administration system, in Zimbabwe • Too many tax revenue heads and different compliance dates that burdens businesses and promotes tax evasion and defaults

on payments 6 • Electronic filing system constantly down and unreliable • Audit system not friendly and accommodative of businesses Source: KPMG 17 concerns • Taxes not fairly applied between formal and informal economy. Payment of VAT General lack of enforcement on the informal sector too much focus on formalized businesses Value Added Tax (VAT) is invoice-based and is accounted for on • Penalties system too high and rigid both cash and credit transactions. VAT payable is the difference • Current tax system penalizes compliant entities with no between output tax and input tax. Output tax is the tax charged incentives for being compliant on taxable supplies made while input tax is the tax incurred by the • VAT system stringent on input claimable registered operator on the acquisition of taxable supplies of goods • High tax rates that stifles investment and business growth and services. Thus, only registered operators are required to charge VAT and are entitled to claim input tax on purchases of goods and services which are used for making taxable supplies. In order to 13http://www.grantthornton.co.zw/globalassets/_markets_/zwe/media/pdfs/ doing- business--in-zimbabwe.pdf claim the input tax, a registered operator must be in possession of 14https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates- a valid ‘tax invoice’ or ‘fiscal tax invoice’. Submission and payment of online/ VAT should be done by the 25th day of the following month. 15http://www.zimra.co.zw/index.php?option=com_content&view=article&id=26&Item id=69 16The highest marginal rate of 50% is subject to an AIDS LEVY of 3%, which effectively makes the highest marginal rate 51.5% 17https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates- online/individual-income-tax-rates-table.html | 14ZNCC | ZNCCAnnual 2018 Report TAX SURVEY2018-2019

1 The highest marginal rate of 50% is subject to an AIDS LEVY of 3%, which effectively makes the highest marginal rate 51.5% ZNCC 2018 TAX SURVEY 23

However, businesses have perceived the VAT refund process as if they perceive that there is no real advantage or benefits of tax inefficient as they take between 6 months and up to 3 years to get a payments. Peacock-Wiseman (1961)21 hypothesis buttresses’ the refund. Furthermore businesses raised concerns that VAT is deemed fiscal psychology theory by highlighting that there is a visible link due on invoices raised instead on amount received, thus businesses between taxes and expenditure and thus compliance rates increase are being forced to pay VAT on outstanding invoices that have when taxpayers have knowledge and information on how the taxes not yet been paid and these factors are impacting negatively on they are paying are being used. According to the 2017 Open Budget business cash flow management . Table below summaries the time Survey, Zimbabwe scores 23/100 on the Open Budget Transparency and frequency it takes to comply with Zimbabwe’s VAT obligation. Index below the global average of 60. This rating indicates that government is not providing enough information with regards Table 6: Time and frequency of compliance with VAT obligations to its expenditure and revenue broken down by functional classification and individual sources of tax and non-tax revenue.22 This information asymmetry between government and tax payers contributes to the public perception that public funds are not being properly utilised resulting in taxpayers seeking ways to avoid/evade paying taxes where there are no corresponding benefits to being tax compliant in terms of improvements in service delivery.

Source: World Bank Doing Business Furthermore, high levels of reported cases of corruption allegations A regional comparison of VAT rates in selected countries in the within the revenue collection administration and perceived lack of regions shows that, in South Africa a standard rate of 14% is levied clear communication between the tax authorities and tax payers on taxable transactions with certain transactions zero-rated or results in poor working relationships. There is a general perception exempt. This is the same system in Zimbabwe where the standard among businesses that ZIMRA is only concerned about revenue rate is pegged at 15%; just the same rate as Namibia and Seychelles, collection and policing taxpayers and less supportive of business whilst in Botswana, other than exempt goods and services, a VAT of growth and trade. Where businesses have low levels of confidence 12% is applied (Table 7). with the Revenue Authority they provide minimal information on their operations and challenges. Limited voluntary disclosure Table 7: VAT rates for selected African countries of information is based on the fear of being subjected to further compliance audits. In this regard businesses limit the information they divulgence only to issues raised by the tax authority.

Business operators have also raised issues to do with perceived lack of flexibility by ZIMRA with regards to the use of punitive measures such as bank garnish orders to ensure compliance without due

Source: KPMG19 consideration for the financial status of the businesses. This they argued have adversely affected tax compliance levels as well as Penalty System investor confidence. With business currently faced with cash flow challenges their focus has mainly been on managing cash flow for Penalties prescribed by ZIMRA are charged to individuals and business survival at the expense of tax payments. business operators who fail to comply with their tax obligations. Thus, a tax payer is liable to pay a penalty of 100% of the defaulted or evaded amounts in the event ZIMRA has managed to assess the tax liability. Furthermore, a penalty of $30/day per day is levied on outstanding filing of tax returns, a penalty of $25 per point of sale for each day the registered operator failed to fiscalise and interest at 10% per annum is levied on outstanding amounts defaulted. 20

Government transparency issues

The tax system must be acceptable to the general public, in order https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates- to motivate tax payers to comply with tax obligations. According to online/ http://www.zimcodd.org/sites/default/files/research/ZIMCODD%20Zimbabwe%20Tax%20 Damayanti et.al. (2015), they highlighted that the Fiscal Psychology Justice%20May%202014.pdf Theory which stresses that taxpayer’s perception of the government Peacock-Wiseman hypothesis states that there is a visible link between government expenditure and being compliant with paying taxes https://www.nber.org/chapters/c2305 is an important factor in ensuring compliance with tax obligations https://www.internationalbudget.org/wp-content/uploads/zimbabwe-open-budget- and as such there is loss of motivation by taxpayers to pay taxes survey-2017-summary.pdf

ZNCC Annual Report 2018-2019 ZNCC 2018 TAX SURVEY | 15 | ZNCC 2018 TAX SURVEY 24

3. Opportunities for a business supportive tax regime in Rwanda, South Africa and Botswana are the best performers in the Zimbabwe ease of doing business. Countries that are ranked high in the ease of doing business also perform well in the ease of paying taxes sub Opportunities are abound for Zimbabwe to broaden the tax base; indicator. However, whilst Zimbabwe compares less favorably in improve tax administration thereby lessening the burden on the Ease of doing business global rankings (155 out of 190) against complying formal sector and these are in the following areas: regional best performers it fairs well in the ease of paying taxes • The continued economic resilience as the economy is ranking (145 out of 190) (Table 8). projected to grow by 4% in 2018 (2019 National Budget). This provides opportunities for the broadening of the tax base. Table 8: 2019 Doing Business Global rankings in Paying taxes • The re-engagement process that the government is In Sub Saharan Africa aggressively pursuing with the international community is likely to open up cheaper lines of credit to boost the production capacities of industries thereby increasing their capacities to pay tax • The ongoing efforts by government since 2015 to enhance the ease of doing business has started bearing fruits as it has slightly improved the country’s overall raking on the World Bank’s Ease of Doing Business. According to the World Bank’s Doing Business 2019 Report for Zimbabwe, Zimbabwe’s overall ranking was 155, four points better than the 171 of year 2015. This programme is generally expected to reduce the cost of doing business, improve institutional efficiencies thereby positively impacting on the competitiveness of the

local industries. Further, the programme is expected to create a conducive environment for attracting foreign investment Source: 2019 World Bank Doing Business hence increased tax base as alluded to above. • The government’s focus on value addition and beneficiation is A comparison of Zimbabwe’s ease of paying taxes environment yet another opportunity that is likely to broaden the tax base shows that in the last ten years covered by the World Bank through increased production along the various economic Doing Business report, Zimbabwe’s tax environment has largely value chains remained stagnant and restrictive to business whilst some • The Government through the 2018-2020 Transitional countries undertook major tax reforms. Whilst it took Zimbabwe, Stabilisation Programme is planning to implement tax Kenya, Zambia and Rwanda 53, 41, 38 and 28 payments per year administration reforms, which seek to simplify tax rules respectively in the 2009 Doing Business year report, in the 2018 and help taxpayers to meet regulatory requirements more Doing business report it was highlighted that it took 51, 25, 11 effectively and efficiently. These reforms entailed a total and 8 payments respectively to comply with the countries tax laws overhaul of the process and organisation of tax administration (Figure 6a).With regards to the time spent in paying taxes, in 2009 with a focus on improving ZIMRA systems and processes; it took 429 , 270, 183 and 160 hours per year to comply with tax simplifying the tax code and propagating a new tax culture obligations in Kenya, Zimbabwe, Zambia and Rwanda respectively, based on partnership and voluntary compliance. The however by the year 2018 it took 179.5,242,164 and 95.5 hours per government’s efforts to enhance its border management , year comply in the respective countries (Figure 4b). automation and streamlining of customer procedures as well as implementing the cargo tracking system provide opportunities Figure 4: Trend in payment of taxes in the Selected Regional best for reduced revenue leakages. These intended reforms are also performers and Zimbabwe

in line with the expectations of business to make the systems 60 450

(a) (b) 400 user friendly for its simplicity and less costly. Tax reforms 50 can impact economic growth via private investment and 350 40 300 productivity (Arnold et al., 2011; Bouis et al., 2012). 250 30 200 4. Other Country Experiences with Regards to Taxes and 20 150 100 Business Viability 10 50 Number of Tax payements per per ofyear TaxNumber payements 0 0 4.1. Doing Business rankings in paying taxes per year) (Hours Taxes in Spent Time Paying Doing Business Year Doing Business Year When assessing investment destination foreign investors pay Botswana Kenya Mauritius Botswana Kenya Rwanda South Africa Zambia Mauritius Rwanda Zimbabwe South Africa Zambia particular attention to the comparative tax environment in different countries. In Sub Saharan Africa Mauritius, Zambia, Seychelles, Source: World Bank 2019 Doing Business | 16ZNCC | ZNCC Annual 2018 Report TAX SURVEY 2018-2019 ZNCC 2018 TAX SURVEY 25

With regards to the performance of revenue collection, Zimbabwe payments accounts for 33.2% of business profits against 46.8 % for compares favourably against selected regional peers. South Africa the rest of Sub Saharan Africa (Table 9). and Botswana have relatively high tax revenue to GDP averaging 25.4% and 24% respectively between the period 2010 and 2016 Table 9: Rwanda’s Performance in the 2019 Doing Business followed by Zimbabwe with 21.8%. Between the period 2006 and Paying taxes Sub Index 2008 Zimbabwe’s Tax revenue to GDP declined to levels below 10% as the country underwent a period of economic turmoil, however following the adoption of a multi-currency system tax revenue to GDP ratio rose to above 20% between the period 2010 and 2016 (Figure 5) Source: World Bank 2019 Doing Business Figure 5: Trend in Tax revenue collection (% of GDP) in selected Sub Saharan African Countries Thus, as a result of the significant tax reforms that were undertaken

30% in Rwanda, Tax revenue collection rose from 10.1% of GDP in 2001

25% to 14.9% of GDP in 2016. A structural shift was witnessed from

20% the year 2010 onwards as tax revenue collection remained above

15% 12% of GDP. The growth in tax revenue collection was buoyed by %of GDP 10% the growth in taxes on income and profits and taxes on goods

5% and services which grew from 3.22% and 5.26% of GDP in 2001 to

0% 5.95% and 7.81% respectively, whilst the contribution of taxes on

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 international trade declined from 2.24% of GDP in 2001 to 1.15% of Botswana Kenya Mauritius Rwanda GDP in 2016 . Furthermore, the reforms to simplify the tax system South Africa Zambia Zimbabwe helped Rwanda in attracting investments from abroad as Foreign Source: ICTD/UNU-WIDER, ‘Government Revenue Dataset (2018) 23 Direct Investment (FDI) inflows grew from below 1% to above 2% from the year 2007 onwards reaching an all-time high of 5.72% of 4.2. Country Case Studies in Paying Taxes GDP in 2014 (Figure 6).

Rwanda Figure 6: Trend in Foreign Direct Investment Inflows Rwanda (2000-2017) In Rwanda, tax collection is the constitutional mandate of the 180 6.0

Rwanda Revenue Authority empowered through the following 160 5.0 legislation; Law on Direct Taxes on Income no 16 of 2005 as 140 120 4.0 amended, Law on Value-added tax no. 37 of 2012, as amended 100 3.0 24 and the Law on Tax Procedures no. 25 of 2005 . Majority of taxes 80 % GDP 60 2.0 including social security contribution are collected by the Rwanda 40 1.0 20

Revenue Authority. According to the World Bank Doing Business Number Tax of payments hours& 0 0.0 report, Rwanda has undertaken a number of initiatives meant at 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 improving the tax system in the country. The Doing Business reports FDI (%GDP) rhs Paying Taxes - Payments (number per year) lhs Paying Taxes - Time (hours per year) lhs note that between the period 2012 to 2018, Rwanda reduced the frequency of value added tax filings by companies from monthly Source: World Bank and UCTADStat 26 to quarterly, followed by the rolling out of an electronic filing system to businesses and making its use compulsory and reducing Lessons for Zimbabwe property tax rate and business trading license fee. In 2008 the Rwanda Revenue Authority (RRA) reduced tax penalties from 100 • In Zimbabwe it is estimated that it takes 242 hours per year and to 50 percent. With regards to interest imposed for late payment of 51 payments to comply with country’s tax laws and obligations tax the rate is pegged at 0.83% per month25 . In this regard Rwanda whilst in Rwanda it takes 8 payments 95.5 hours to comply is globally ranked 35th in the Doing Business Paying Taxes with a with country’s tax laws and obligations. Thus, there is need to score of 63.68 out of 100 against a Sub Saharan average of 54.63 simplify the tax administration regime by reducing the number of payments and hour’s needed to comply with the country’s According to the 2019 Doing Business report, corporates makes 8 tax laws. payments related to complying with tax obligations against a Sub Saharan average of 37.4 payments per annum. Whilst with regards 23https://www.wider.unu.edu/project/government-revenue-datase 24 to the time it takes to comply with three major taxes, it takes 95.5 https://www.pwc.com/rw/en/assets/pdf/taxguide2015-rwanda.pdf 25Rwanda Personal Income Tax; https://sataxguide.wordpress.com/rwanda-personal- hours against a Sub-Saharan average of 280.6 hours. At the end tax income-tax/ 26http://unctadstat.unctad.org/EN/ ZNCCZNCC Annual 2018 TAXReport SURVEY 2018-2019 | 17 | ZNCC 2018 TAX SURVEY 26

• There is need for restructuring the customs administration Table 10: Zambia’s Performance in the 2019 doing Business; from being perceived gatekeepers to facilitators of domestic Ease of Paying taxes Sub Index industries through easing trade procedures. There is need to allow imports of intermediate inputs to spur growth of industrial output and ultimately economic growth. As the economy growth the revenue based from which taxes are collected

grows. In Rwanda the contribution of taxes on international trade declined from 2.24% of GDP in 2001 to 1.15% of GDP in Source: World Bank 2019 Doing Business 2016 whilst domestic taxes contribution increased drastically. Lessons for Zimbabwe Zambia • There is need to change and simplify the tax system and the broader regulatory environment for the tax reforms to In Zambia the government imposes a number of taxes and levies have meaningful impact. This may include harmonisation of on the economy with the majority of taxes being collected by the some regulatory levies as well as reducing the number of tax Zambia Revenue Authority (ZRA) which is mandated by Section 11 heads and the rate of taxes payable. of the Zambia Revenue Authority Act, Chapter 321 of the Laws of • In Zimbabwe, defaulting on tax liability results in a penalty Zambia to collect taxes from corporates and individuals27. Between of 100% levied on defaulted or evaded amounts, a penalty the period 2007 and 2017 Zambia undertook reforms aimed of $30/day for each day the tax returns remain outstanding, at simplifying their tax system, these included amendments to a penalty of $25 per point of sale, for each day the registered update, strengthen and remove ambiguities in the income tax law operator who fails to fiscalise and an interest of 10% per and to enhance the effectiveness of tax administration, introducing annum is levied on outstanding amounts defaulted. Whilst an online system for filing income taxes, VAT and reducing tax on in Zambia penalties are far less as outlined above. In this property transfer28. With regards to penalties on non-compliance regard there is scope to review measures used to enforce with provisions of tax legislation these are outlined as follows: compliance in Zimbabwe which business operators consider VAT penalties to be too punitive. • Late return –K180,000 (USD 15.21) per day or 5% of the tax • A tax enforcement regime that is less punitive may prevent whichever is high business operators from crafting elaborate tax evasion • Late payment 0.5% of the return amount with interest schemes. A case in point issue that is in the public domain charged at Bank of Zambia discounted rate plus 2% is the Zimra vs Chaparrel Trading & Trek Petroleum case in • Non-use of cash registers for retailers to K90,000 (USD7.6029 ) which Chaparrel Trading was accused of transferring its asset Income tax penalties to Trek Petroleum as a deliberate scheme to avoid settling its • Incorrect returns up to 52.5% of amount outstanding tax obligations31. • Non-payment 5% of the outstanding amount • Late submission 1000 penalty units per month for individuals 5. Summary of Fieldwork findings and 2000 penalty units per month for corporates a penalty is equivalent to K180 (USD0.015) This section summarises findings from the survey and should be as illustrative of some of the experiences businesses have with the However, where a tax payer is aggrieved by the decision of the current tax regime as the sample size was not representative. Commissioner General, he/she may by written notice seek appeal to the Revenue Appeals Tribunal and thereafter appeals can be 5.1. Taxes which businesses pay made in Superior courts in Zambia30. The following tables present responses made by the interviewees indicating the taxes they pay. Generally most of them indicated that According to the 2019 Doing Business report, an assessment they pay the taxes to ZIMRA. Nonpayment is explained by reasons of Zambia’s tax system showed that businesses had to make 11 cited in earlier sections of this report. payments related to complying with tax obligations against a Sub Saharan average of 37.4 payments per annum. On the other hand it took 164 hours to comply with obligations of three major taxes, against a Sub-Saharan average of 280.6 hours. The fulfilling of tax 27Zambia Revenue Authority website, https://www.zra.org.zm/commonHomePage. obligations in Zambia takes away an estimated 15.6% of business htm?viewName=History profits against 46.8 % for the rest of Sub Saharan Africa an indication 28http://www.doingbusiness.org/en/data/exploretopics/paying-taxes/reforms that tax payers in the country bear a lesser tax burden compared to 29Zambia Kwacha at rate of 1 USD = 11,843.87 ZMK https://www.xe.com/currencyconverter/ its regional peers. convert/?Amount=180&From=ZMK&To=USD 30Zambia Revenue Authority Penalties https://www.zra.org.zm/commonHomePage. htm?viewName=Penalties 31Trek Petroleum (Pvt) Ltd. v ZIMRA (SC 56/17;https://zimlii.org/node/8488; https://www. dailynews.co.zw/articles/2017/10/21/trek-loses-45m-supreme-court-garnishee-appeal | 18ZNCC | ZNCCAnnual 2018 Report TAX SURVEY2018-2019 ZNCC 2018 TAX SURVEY 27

Table 11. Corporate Income Tax Table 16 Withholding Taxes:

Table 11 shows that 83% of the respondents paid corporate tax Table 16 shows that 54.7% paid withholding tax while 26.7% did while 5.8% did not and the rest did not respond. This shows that not and 18.6% did not indicate that position. there is still an opportunity for ZIMRA to consolidate on its tax collection efforts and systems. Table 17 Aids Levy

Table 12. Value Added Tax (VAT)

Most of the respondents (83.7%) indicated that they remit aid levy to ZIMRA while the balance either did not or were not willing Table 12 shows that 77.9% of the respondents pay VAT, 11.6% do to share their position on this (see Table 17). The result generally not and 10.5% did not share their position on whether they pay or shows that compliance on aid levy is relatively high. not. This points to the weaknesses still inherent in the current VAT tax system which still leaves out some business players from the Table 18 Social Security contributions e-based platform. Further, the challenges with the invoice based system could, in part, explain the non-compliance.

Table 13. Customs Duty

The majority of the respondents indicated they submit social security contributions as shown in Table 18. About a tenth said they do not while the remainder did not respond.

In Table 13, 53.5% showed that they contributed towards customs Table 19.Manpower development Levy duty, while 24.4% did not pay and the rest did not respond. The leakages in the collection of customs duty continue to militate against the tax head’s potential to contribute towards the total revenue collections.

Table 14 Pay As You Earn (PAYE) Table 19 shows that they pay manpower development levy while about a fifth did not and the rest chose not to share their position on this.

5.2. Outstanding taxes

As many as 86% of the respondents indicated that they remit PAYE Generally business operators interviewed indicated they have to ZIMRA while 5.8% did not and 8.1% were not willing to share fewer outstanding taxes with ZIMRA and these are summarised in their position (see Table 14). the tables below. Only 29% said they have outstanding taxes. The results are based on the Table 15 Capital gains tax Table 20 Do you have any outstanding tax dues

Only 30.2% of the respondents indicated that they pay capital gains tax to ZIMRA as illustrated in Table 8e. Those that did not contribute to this tax head were 33.7% and the rest did not respond (see Table 15). ZNCCZNCC Annual 2018 TAXReport SURVEY 2018-2019 | 19 | ZNCC 2018 TAX SURVEY 28

Of all the interviewees that responded to this question, 29.1% In Table 25 as much as 65.1% of the respondents did not owe indicated that they still have outstanding taxes while 64% did not anything to ZIMRA in capital gains tax. (see Table 20). The general picture from the results shows difficulties faced by interviewed business operators to timely remit their tax Table 26 Withholding Taxes: outstanding? dues. This may be explained by issues raised in the earlier sections of this paper.

Table 21 Corporate Income Tax outstanding?

Table 26 shows that 3.5% had withholding taxes outstanding while 65.1% had nothing owing and the rest did not respond.

Nearly 13% said they have corporate income tax outstanding but Table 27 Aids Levy outstanding? 25% did not share their position (see Table 21).

Table 22 Value Added Tax (VAT ) outstanding?

In Table 27, only 2.3% said they had AIDS levy owing while 66.3% said they were paid up in AIDS levy and the rest did not respond. As shown in Table 22, 16% of the respondents indicated that they have outstanding payments on VAT. As many as 22.1% did not Table 28 Social Security contributions outstanding? respond and the rest said they owed nothing in VAT to ZIMRA. Table 23 Customs Duty outstanding?

Table 23 Customs Duty outstanding?

In Table 28 10.5% of the respondents had social security contributions owing while 62.8% were paid up and the rest did not respond.

Table 23 summaries results of interviewee responses to the Table 29 Manpower development Levy outstanding? question on outstanding customs duty to which 65.1% indicated they did not have any outstanding taxes. Only 1 respondent had outstanding customs duty but the rest did not respond.

Table 24 Pay As You Earn (PAYE) outstanding?

Only 7% in Table 29 said they owed government in manpower development levy while 62.8% were paid up and the others opted not to share their position on this.

The results from the field further indicate that the tax debt was on Table 24 shows that 64 % of the respondents had no outstanding average 11% of all total debts to the 64 businesses that responded PAYE while 11% percent indicated they were yet to submit PAYE to to this question. Sixty seven respondents indicated that they spend ZIMRA and others were not keen to share their position. an average of 4.67days to comply with tax related issues. About 28% of the respondents said they were entitled to VAT Table 25 Capital gains tax outstanding? refunds however it takes very long to receive it. They noted that it can take from 6 months up to 3year or not even come.

| ZNCC Annual Report 2018-2019 20 | ZNCC 2018 TAX SURVEY ZNCC 2018 TAX SURVEY 29

5.3. Usage and Efficiency of tax filling systems Figure 9: Fairness of measures to ensure compliance

92% of the respondents highlighted that they use ZIMRA‘s e –filling system to file their tax returns and 80.77% also highlighted that they Fairness of Penalty system 10.87% 14.13% 75.00% are also still making use of the manual tax submissions to ZIMRA. For those that make use of both systems majority highlighted that they used the manual system when the filling system is down or Fairness of Other Compliance measures 17.76% 13.16% 69.08% they don’t have internet services to access the electronic filing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% system (Figure 7). The high usage of the electronic payment system Fair Not Sure Unfair is a result of ZIMRA drive towards improving accessibility of tax services. 5.5. Effect of current tax policy on business activities Figure 7: Usage of tax filling systems Majority of respondents highlighted that the current tax policy in place have a negative effect on the activities of business E-filling 92.00% with particular impact being its effect on business access to the domestic market. This emanates from competition from imports which business operators feel they are not being protected from Manual 80.77% especially imports brought into the country by through informal channels by informal market players who are not paying their fair 72.00% 76.00% 80.00% 84.00% 88.00% 92.00% 96.00% share of import duties and taxes. Thus 67.3% of respondents feel the current tax system is limiting business access to the domestic However, the usage of these two tax filing methods have an impact market, whilst 62.5% 58.9% highlighted that the tax system is not on business in terms of their effeiciencies.17.5% and 39.47% of protecting them from competition of imports and activities of the businesses still regard the manual filling system as very efficient informal economy. and somehow efficient whilst only 6.48% and 31.48% of businesses regards the electronic filing system as efficient, this is due to the fact Furthermore 58.4% of respondents highlighted that the tax system that the electronic filing system usually encounters some systems is fueling corruption in the country. Regarding direct impact on the challenges resulting in the inaccessibility of the tax filling system. operations of businesses, 57.4% and 57% of respondents highlighted Thus 37.04% of respondents highlighted that the e-filling system that the current tax system has a negative impact on businesses is not efficient at all whilst 22.81% highlighted that the manual cash flow management and cost of business. Most businesses system is not efficient at all (Figure 8). operators interviewed felt that the current tax system is based on an invoice basis, hence the tax authority requires taxpayers to meet Figure 8: Efficiency of tax filling system tax obligations for invoices that are not paid yet hence putting a strain on the cash flow of the business. Furthermore, the cost of compliance and numerous tax revenue heads add to the cost of Efficiency of Manual system 17.54% 39.47% 20.18% 22.81% doing business resulting in businesses losing their competitiveness both locally and abroad.

Efficiency of Efilling system 6.48% 31.48% 25.00% 37.04% The stock of outstanding tax debt is also adding to business 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% challenges in accessing finance both locally and on international Very efficient Somehow Efficient Not Sure Not Efficient at all finance as it adds to the business gearing ratio. Furthermore, 56.9% and 56.7% of respondents highlighted that the current tax system 5.4. Fairness of measures to ensure compliance affects negatively businesses ability to access finance (Figure 10).

With regards to the fairness of the ZIMRA measures to ensure Figure 10: Effect of current tax policy on business activities compliance with tax obligations, most businesses regarded the measures as unfair and punitive. Thus 75% of respondents Domestic Market 7.7% 25.0% 67.3% Comptetion from Imports 12.1% 25.3% 62.5% regarded the penalty system as unfair whilst 69.08% regarded Informal Competition 15.2% 25.8% 58.9% Corruption 16.8% 24.8% 58.4% other measures such as the use of bank garnish orders as unfair. Cashflow Management 13.6% 29.0% 57.4% Cost Of Business 13.9% 29.1% 57.0% On the other hand only 10.8% and 17.76% highlighted that the Access to Finance 15.4% 27.7% 56.9% penalty system and other measures of ensuring compliance are fair Access to International Finance 15.0% 28.2% 56.7% Access to Regional Markets 14.2% 29.4% 56.3% in ensuring compliance (Figure 9). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Positive Effect No Effect Negative Effect

ZNCC 2018 TAX SURVEY ZNCC Annual Report 2018-2019| 21 | ZNCC 2018 CONGRESS RESOLUTIONS 30

6. Recommendations alike, on their obligation to pay taxes. This could further entail demystifying business perception about ZIMRA as less Drawing from the analysis literature in particular fiscal psychology supportive of business growth. literature, comparative country experiences with tax and ease of • Strengthening tax administration and broadening the doing business reforms and the survey results from the interviewed base. This is in line with SDG 17.1 that seeks to strengthen business operators the study concludes that there is scope within domestic resource mobilization, to improve domestic the Zimbabwe tax system to undertake tax reforms that: capacity for tax and other revenue collection32. This entails i. create a business friendly tax regime that facilitates accelerate the adoption of innovative and contemporary investment and growth of local enterprises revenue collection, border management control and customs clearance systems. In addition, ZIMRA to Consideration can be made after taking into account the country’s strengthen mechanisms that eliminate delays, smuggling specific context tax reforms in order to incentivize businesses, boost of goods and revenue leakages. This includes enhancing economic recovery and transformation in line with achieving vision efficiency of e-filing system, automisation of tax system and 2030. This may entail: e-registration, charging fewer tax heads. Moreso, registering and paying taxes should be made very simple in order to • Lowering tax rates particularly on small businesses and accommodate all categories of SMEs in the informal sector individuals respectively in order to unlock working capital • Enhance capacity through training of ZIMRA staff to be able and increasing public disposable income. This also provides to net all tax dodgers and ensure that they pay taxes for business with the space to grow. the realisation of Vision 2030 of achieving an Upper Middle • Create incentives for tax complying companies. For example, Income country status. part of the tax revenues to be used to create a loan facility for tax compliant industries and to be accessed at affordable rates. In addition introduce a rating system for tax compliant companies that can be used as a criteria by the government tender system. Another option could be to offer refundable tax credits to specific sectors such as the manufacturing sector • Broaden revenue base for example by netting in on the informal sector and creating new industries. The IMF 2018 annual report estimates that Sub-Saharan Africa could mobilise up to 5 percent of gross domestic product in additional tax revenues, adding that to tap this potential, countries must continue with efforts to modernize tax administration systems and broaden the tax base. • There must be zero tolerance on corruption to plug revenue leakages • Speed up the operationalisation of ZIDA, a one stop shop for both local and foreign investors. This is envisaged to contribute towards increased investment hence broaden the tax base.

ii. In order to improve tax compliance the government may consider to: • Collected revenue taxes must be utilised towards socio- economic development of the country and the government should embrace fiscal discipline. In addition there must be transparency on how the resources were expended. • Simplify the tax system and reduce avoidance and evasion. In addition, create a one centre for the collection of taxes and levies.

iii. Improve tax administration; tax policy and legal framework • Conduct aggressive tax education. ZIMRA to undertake robust, flexible and modern awareness campaigns to educate our citizens, small and medium enterprises and corporates 32https://unstats.un.org/sdgs/metadata/ | 22ZNCC | ZNCCAnnual 2018 Report TAX SURVEY2018-2019 2018 FINANCIAL STATEMENTS 31

Auditor’s Statement

The abridged version of the financial results should be read in Committee have performed a sensitivity analysis on how the conjunction with full set of financial statements for the year different exchange rates would have impacted the consolidated ended 31 December 2018, which have been audited by Grant financial statements as at 31 December 2018 and disclosed this Thornton. An adverse opinion was issued thereon because of in note 21. The auditor’s report on these financial statements is non-compliance with International Accounting Standard 21 (The available for inspection at the Chamber’s registered office. EffectsZimbabwe of NationalChanges Chamber in Foreign of CommerceExchange Rates). The Executive 7

Statement of financial position as at 31 December 2018

Restated Restated 2018 2017 2016 Notes USD USD USD ASSETS

Non current assets Property and equipment 355 589 262 727 271 378

Current assets Account receivables 7 14 708 4 583 3 105 Bank and cash balances 8 74 936 60 759 2 129

89 644 65 342 5 234

Total assets 445 233 328 069 276 612

FUNDS AND LIABILITIES

Funds Revaluation reserve 96 726 - - Accumalated earnings 125 024 128 712 57 341

221 750 128 712 57 341

Current liabilities Accounts payable 9 223 483 199 357 219 271

Total funds and liabilities 445 233 328 069 276 612

………………………………………………. ………………………………………………. Mr M. Kamungeremu Mr C. Mugaga Finance Committee Chairperson Chief Executive Officer

| ZNCC Annual Report 2018-2019 Zimbabwe2018 National FINANCIAL Chamber STATEMENTSof Commerce 32 6

Statement of income and expenditure for the year ended 31 December 2018

2018 2017 Notes USD USD

Income

Membership subscriptions 3 167 898 160 700 Events income 500 811 526 684 Other income 4 74 366 82 352

743 075 769 736

Expenditure

Personnel costs 5 226 547 173 569 Events expenses 339 718 307 657 Administration costs 6 180 498 168 565

Zimbabwe National Chamber of Commerce 746 763 649 7918

Surplus for the year (3 688) 119 945

Statement of changes in funds for the year ended 31 December 2018

Accumulated Revaluation Total Note fund reserve USD USD USD

Balance as at 1 January 2017 (255 157) - (255 157)

Correction of prior period error 10 312 498 - 312 498

Restated balance as at 1 January 2017 57 341 - 57 341

Surplus for the year 119 945 - 119 945

177 286 - 177 286

Correction of error 10 (48 574) - (48 574)

Restated balance at 1 January 2018 128 712 - 128 712

Revaluation of assets - 96 726 96 726

Surplus for the year (3 688) - (3 688)

Balance as at 31 December 2018 125 024 96 726 221 750

ZNCC Annual Report 2018-2019 | Zimbabwe National Chamber of Commerce 9 Zimbabwe2018 National FINANCIAL Chamber ofSTATEMENTS Commerce 33 9

Statement of cash flows for the year ended 31 December 2018 Statement of cash flows for the year ended 31 December 2018 Restated 2018 2017 Notes USD RestatedUSD 2018 2017 Cash flows from operating activities Notes USD USD

SurplusCash flows for thefrom year operating activities (3 688) 119 945

AdjustmentsSurplus for the for: year (3 688) 119 945

DepreciationAdjustments for:charge 6 584 13 140

CashDepreciation from operations charge before working capital changes 26 896584 13313 085140

Cash from operations before working capital changes 2 896 133 085 Changes in working capital 14 003 (69 967)

CashflowsChanges in generated working capital from operating activities 1614 899003 (6963 967) 118

Cashflows generated from operating activities 16 899 63 118 Cash flows from investing activities

PurchaseCash flows of fromproperty investing and equipment activities (2 722) (4 488)

CashflowsPurchase of utilised property in andoperating equipment activities (2 722) (4 488)

Cashflows utilised in operating activities (2 722) (4 488) Increase in cash and cash equivalents 14 177 58 630 Zimbabwe National Chamber of Commerce 10 CashIncrease and incash cash equivalents and cash at equivalents the beginning of the year 6014 759177 582 129630

Cash and cash cash equivalents equivalents at at the the beginning end of year of the year 7460 936759 602 759129

Cash and cash equivalents at the end of year 74 936 60 759 Statement of accounting policies for the year ended 31 December 2018

1 General Information

Zimbabwe National Chamber of Commerce is a not-for-profit membership organisation that provides services designed to support its members in business development. It carries its operations through five stand alone branches namely Harare branch, Bulawayo branch, Mutare branch, Gweru branch and National Office. All these branches were amalgamated in the amalgamated financial statements of the Chamber.

2 Basis of preparation

The Entity's financial statements have been prepared in accordance with International Financial Reporting Standards, ("IFRS") and

International Financial Reporting Interpretations Committee ("IFRIC") interpretations .The financial statements have been prepared

under the historical cost convention as modified by the revaluation of property and equipment.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Entity’s accounting policies.

Statement of compliance

The Entity's financial statements have been prepared in accordance with International Financial Reporting Standards, (IFRS) and the International Financial Reporting Interpretations Committee, (IFRIC) interpretations. The financial statements are based on statutory records that are maintained under the historical cost convention. | ZNCC Annual Report 2018-2019 Zimbabwe2018 National FINANCIAL Chamber ofSTATEMENTS Commerce 34 17

Notes to the financial statements for the year ended 31 December 2018

2018 2017 USD USD 3 Membership subscriptions

Gold 37 245 24 300 Diamond 19 600 33 200 Bronze 6 150 3 950 Silver 46 453 42 245 Platinum 58 300 51 500 Other 150 5 505

167 898 160 700

4 Other income

ZNCC magazine and calender 4 020 15 326 Boardrom hire 1 496 1 361 Certificates of origin 26 268 22 136 Legalising 34 796 34 789 Interest receivable 268 178 Company registrations - 620 Miscelleneous income 7 518 7 942

74 366 82 352

5 Personnel costs

Funeral policy 2 388 4 657 NSSA 1 858 6 367 Salaries and wages 206 574 147 035 Leave pay movement 4 211 - Student allowance 3 401 3 200 Transport allowance 7 332 8 332 Housing allowance - 1 080 Workers compensation insurance fund - 1 484 Zimbabwe development fund 783 1 414

226 547 173 569

| ZNCC Annual Report 2018-2019 2018 FINANCIAL STATEMENTS 35 Zimbabwe National Chamber of Commerce 18

Notes to the financial statements for the year ended 31 December 2018

2018 2017 USD USD

6 Adminstration costs

Advertising 5 904 5 509 Audit and accounting fees 12 029 6 532 Bank charges 8 533 6 655 Committee meeting expenses 1 118 1 061 Company registration - 162 Computer expenses 2 657 1 061 Consultancy Fees 15 047 - Depreciation 6 584 13 140 Electricity 2 675 4 808 Fuel 11 411 11 521 General expenses 5 005 9 478 Hire costs - 150 Insurance 2 611 926 Legal expenses 1 557 1 757 Licence 1 184 2 704 Penalties - 50 Magazine printing - 4 000 Motor vehicle expenses 7 131 6 974 Newspaper expenses 3 2 Parking expense 5 11 Printing and stationery 13 120 10 493 Postage 51 73 Rent and rates 33 340 41 366 Repairs and maintanance 8 072 460 Sponsorship - - Staff training 1 064 Staff welfare 3 821 1 649 Sundry expenses 933 - Teas and cleaning 1 242 2 955 Telephone and internet 12 103 12 896 Travel and accomodation 22 826 15 257 Security - 137 Purchases cerificate of origin 472 6 778

180 498 168 565

ZNCC Annual Report 2018-2019 | 2018 FINANCIAL STATEMENTS 36

Notes to the financial statements for the year ended 31 December 2018

2018 2017 USD USD

7 Accounts receivables

Trade receivables 14 708 3 463 Other receivables - 1 120

14 708 4 583

8 Cash and cash equivalents

For the purposes of statement of cash flows, cash and cash equivalents includes cash on hand and cash in banks. Cash and cash equivalents at the end of the financial period as shown in the statement of cash flows can be reconciled to the statement of financial position as follows:

Cash on hand 1 103 1 221

Cash at bank Cash at bank 73 833 59 538

74 936 60 759

9 Accounts payables

Trade payables 100 282 105 262 Statutory obligations 103 485 94 095 Other payables 19 716 -

223 483 199 357

10 Correction of prior period eror

In the financial periods before 2018, errors were made in the recording of some transactions and balances in the financial records. The effect of the restatement on the financial statements is summarised below:

2017 2016 USD USD

Effect on the statement of financial position

Decrease in trade and other receivables (124 537) (76 377) Decrease in cash and cash equivalents (4 957) (4 543) Decrease in trade and other payables 355 631 355 631 Increase in accumulated losses (263 924) (312 498) Decrease in deferred income 37 787 37 787

Net effect - -

| ZNCC Annual Report 2018-2019