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Blessing Bonga Business Reporter
TAX evasion and avoidance both have negative implications on the economy as they hamper governmental efficiency in engaging in beneficial programmes and result in an eroded tax base which in turn widens the national budget deficit.
Tax evasion is the non-payment of taxes by individuals, corporations and trusts and it often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities in order to reduce their tax liability.

It includes dishonest tax reporting such as declaring less income, profits or gains than the amounts actually earned or overstating deductions.

Tax avoidance on the other hand is the legal use of tax laws in order to reduce one’s tax burden through deliberate omission of income on a tax return, non-payment of taxes owed or not filing a tax return altogether to avoid having to pay taxes to the Government.

Section 98 of the country’s Income Tax Act (Chapter 23:06) refers to tax avoidance in general as a transaction, operation or scheme that has the effect of avoiding or postponing tax or was entered into by abnormal means or manner or created abnormal rights or obligations.

If the Commissioner believes avoidance or postponement was the sole or main purpose of the transaction, operation or scheme, he may set the scheme aside. What aggravates the problem in the Zimbabwean scenario is that the Zimbabwe Revenue Authority lacks capacity to fully administer its tax management systems.

ZIMRA is currently struggling to include the informal sector in the official tax remittance system which now accounts for an estimated 50 percent of the country’s gross domestic product.

Against such a situation, most productive activities that are taking place in the sector go untaxed, creating further cracks on

Government’s tax basket.

The issue of compliance especially in the extractive sector is deemed costly for companies and thus opens it up to corruption, through compliance avoidance which lowers standards or demand for facilitation payments.

The resultant effects include extreme levels of tax avoidance and tax evasion, leading to corrupt practices whereby the tax evaders seek to pay bribes to tax officials leading to increased tax leakages.

A tax expert with a local firm, Mrs Josephine Matambo, said since avoiding taxes shrinks the country’s tax base, fiscal authorities usually have no option but to introduce measures that increase pressure on those already in the tax net.

“The overall impact of tax avoidance and tax evasion is to erode the tax base thereby increasing the national budget deficit.”

“When there is a national budget deficit authorities may seek to introduce fiscal measures that increase the tax burden on those that are already in the tax net,” she said.

In the 2014 National Budget statement, Finance and Economic Development Minister Patrick Chinamasa announced the increase in the tax rate for the higher tax brackets for individuals (the tax rate on those earning above US$20 000 per month went up from 45 percent to 50 percent).

The need to widen the country’s tax base has also seen the introduction of new methods of taxation that include the new Income Tax Law currently under consideration.

An introduction of stricter trade measures that require export and import agencies to be licensed and increase in tax penalties including the proposed introduction of a penalty of US$30 for each day (up to a maximum of 181 days) a trader fails to register for Value Added Tax once the obligatory registration threshold of US$60 000 has been attained are part of efforts to curb tax non-remittance.

Once tax has been extended and squeezed out of the profits of the existing taxpayers then their propensity to save or consume is reduced and this in turn will lead to reduced investment and a slowdown in the growth of the economy.

High taxes, to a certain extent discourage foreign direct investment (though some experiences have shown that FDI responds more to the existence of resources and political environment than to the level of taxes).

Taxpayer funds usually have to be redirected from developmental projects towards employing expensive foreign tax experts to train tax officials to curb tax evasion.

In an efficient entrepreneurial, commercial and industrial economy like Zimbabwe, reliance is on competition between businesses but when one company is evading taxes and another is not it then creates an artificial advantage for the company evading taxes.

This could lead to companies with less business practices outlasting those with more efficient practices, which would be detrimental to the economy.

A recent research conducted by the Global Financial Integrity estimates that the country has lost close to US$12 billion since independence mainly because of corruption activities that also include tax avoidance and evasion and other illegal commercial transactions.

It is therefore critical to promote financial transparency while closely monitoring operations of all businesses that operate in the country who might take advantage of loopholes in the tax system to either evade or avoid paying taxes and bring them to book.