Business Correspondent
The government is facing a significant financial crisis, primarily due to its own policies that have severely impacted tax revenue.
The Ministry of Finance has announced drastic cuts to fuel allocations and other expenses, indicating that the government is running out of money.
This situation has arisen after years of policies that have eroded the tax base by undermining formal, taxpaying businesses.
Key Factors Contributing to the Crisis
- Devaluation of the Currency: A 43% devaluation of the Zimbabwean dollar (ZiG) in September has created a substantial mismatch between government spending and revenue. This has forced the government to increase salaries and provide food aid, further straining its finances.
- Declining Corporate Tax Revenue: Corporate tax revenue has plummeted from 15.4% of total earnings in 2022 to just 9.8% currently. This decline is attributed to the growth of the informal sector, which now controls over 60% of economic activities, leading to increased competition for formal businesses.
- Impact of Informal Sector: The government’s policies have driven many businesses into the informal market, where they can evade taxes. This shift has resulted in a significant drop in tax collections, including from the intermediated money transfer tax (IMTT), which has decreased from 12% of government revenue in early 2020 to just 3.5% now.
- Failure to Support Formal Businesses: Critics, including financial analysts, argue that the government should focus on supporting the formal sector rather than imposing burdensome policies that favor informal traders. This lack of support has led to calls for a more balanced approach to taxation and regulation.
Conclusion
The government’s current financial predicament is a direct result of its own policies that have undermined the formal economy. With no immediate relief in sight, as indicated by the upcoming national budget statement, public services are likely to suffer further. The situation calls for a reevaluation of strategies to support formal businesses and stabilize tax revenue.
Zim GBC News©2024