The super-rich should be heavily taxed

What is the rationale behind taxing vendors selling mere trinkets and vegetables on the streets, yet owners of 30-bedroomed houses in Harare owning a fleet of luxury cars are not taxed a dime?

What is the rationale behind taxing vendors selling mere trinkets and vegetables on the streets, yet owners of 30-bedroomed houses in Harare owning a fleet of luxury cars are not taxed a dime?

Nick Mangwana View from the Diaspora

It happens in other countries. You show off a lot of money, revenue compliance officers pay you a little visit to pry through your books. The reader can recall a lot of names of famous individuals who ended up in prison

Vladimir Lenin said that the only way to crush the bourgeoisie is to grind them between taxation and inflation. It is difficult to support inflation as a societal equaliser, but when it comes to taxation, one cannot but agree that the old socialist philosopher put his finger right on the heartbeat of the issue.

The statement from Lenin sounds like the jealousy ranting of a loser who could not make it in life and therefore wages a war on the more enterprising members of the community who have made it.

In generic terms there is a ring of truth in this. After all, the successful are a constant reminder to their not-so successful contemporaries of their own deficiencies.

Winston Churchill said, “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.”

How can a Zanu-PF functionary quote this British guy and imply that he was right? After all, the very preamble of the Party’s constitution calls it a socialist party.

If socialism hates the rich then it is a failure’s pastime. However, if socialism asks the rich to play their part in uplifting the poor so that they could lose their indigence, then socialism becomes the conscience of the peasant and commoner.

Through the agrarian reform programme one can see some hints of the social reform and socialism. Through Indigenisation one can pick a subtle allusion to expanding economic participation to everyone.

But the creation of oligarchs means that the ideals of socialism have probably taken a tangential trajectory. The only way out of this ideological fix is to have a distributional taxation policy structure. As has become habit within this column, a bit of candid policy introspection is on the menu.

The current tax policy in Zimbabwe appears to the public as if it is contrived by the elite to protect their interests. How else can one explain the level of wealth being flaunted around and yet the whole country only managed to collect revenues of $3,6 billion against a target of $3,82 billion for 2014?

The frame of reference for this is the number of luxury cars, the superfluity of 30-bedroom houses in Harare to a couple with two children that have flown the nest, holidays in exotic places and all sorts of luxurious indulgences which run into millions.

So how can a whole country fail to collect $3,82billion it expected? Remember Nigeria’s defence budget only is $4 billion. And Zimbabwe is a big country in stature to a level that the United Kingdom has a full Unit to deal with its relationship with Zimbabwe and another unit to deal with the rest of the Commonwealth.

Is Zimbabwe punching above its weight or its distortionary tax regime needs reform? The latter rings true.

It is incongruous in a supposedly egalitarian society to have the powerful, rich and politically connected raise themselves above all nobility to a pretentious level of ostentatious demigods. The basic approach should be, every time one flaunts their wealth, they are asked for their tax return to verify whether the money that was paid was clean money and whether appropriate taxes were paid on it.

The same should apply to anyone who builds a vulgar house. It happens in other countries. You show off a lot of money, revenue compliance officers pay you a little visit to pry through your books. The reader can recall a lot of names of famous individuals who ended up in prison.

It reconciles society and most important of all, it brings governance and transparency. Even better, the dry Government coffers will be replenished. There is too much bitterness on social media from the poor in Zimbabwe. Part of the reason is that Zimbabwe has endured a very rich stratum of oligarchs whose primary pre-occupation has been the obnoxious flaunting of their wealth in the faces of the impoverished who are selling trinkets.

If truly Zanu-PF is a socialist Party it should do away with all these glaring contradictions. Otherwise the ideological underpinnings should change.

The taxation of the super-rich problem is not a Zimbabwe only issue. The UK is having elections in May 2015.

Tax avoidance by the super-rich has become a central issue. The Conservatives are being accused of having one rule for their super-rich cronies whose tax avoidance schemes are ignored and another for the rest of the people who bear the burden of society.

The Labour leader David Miliband is calling the taxing of the super-rich some form of “social efficiency”.

The Conservatives are countering that by saying that during Labour’s 13-year reign, they did not do anything about the tax avoidance schemes of this elite group as well.

They also accuse the Labour leader of having dodged paying Inheritance Tax on his late father’s estate.

In the last US election Mitt Romney had to contend with the same accusation of being super rich as a tax dodger.

What is clear is that rich people do not want to pay taxes.

Zimbabwe’s problem is a developing world one which is slightly different from the British and American one.

There is a trend in the world of spreading the taxation burden by taxing the small and medium enterprises (SME). Zimbabwe recently joined this trend.

While this is welcome in as much as it brings the social obligation to everybody, this is just a moral position and not a revenue raising position. Taxing street hustlers and trinket sellers has very high compliance costs, very high administration costs and the tax yield itself is very low, possibly giving a negative net revenue benefit.

The only measurable advantage of taxing the informal sector is that it forces them to formalise and therefore put in some governance measures which arguably makes them grow the business.

Zimbabwe has an abundance of these micro-enterprises which help the populace eke a living during these hard times. Some hardly manage to feed their families from the day’s takings and have something left to continue trading tomorrow.

The taxation of those in this category becomes a big scourge on the conscience of society.

What, with the people they hustle at traffic lights hardly paying any taxes at all! It makes a mockery of the system. But then it is the rich and powerful that make the rules that suit them.

The distortional tax regime in the country means that a then sort of powerful Prime Minister who is a leader of an opposition party paid hundreds of thousands of dollars in a domestic dispute settlement and the revenue authorities did nothing about it.

They did not ask for his tax return, they did not check whether any taxes had been paid on that income.

They did not check whether the money was even clean. If such a high-profile event can happen without getting professional attention from the revenue authorities, then there is a big chance that Zimbabwe can easily turn into a haven of organised crime.

Maybe the next instalment of this column should cover that. Anyway, back to this week’s issue. How does the street hustler feel when they receive a visit from a revenue compliance officer who ignores the person who is driving a brand new imported car which in all probability has avoided paying duty?

Everybody should play their part according to their means with the rich paying more.

When a government increases its tax base, it should also increase its accountability and transparency, for surely the term public funds becomes all too applicable.

Since it is not the government’s money but public money, the government should be more accountable to the owners of the money.

Taxation is the only way which does not punish the rich, creative and imaginative for the sake of it. It helps uplift the poor for the sake of society.

But only focussing on the informal traders and SMEs without really clamping down on those clearly parading a lot wealth does not bring equality to society.

How can there be, when scandals like the recent HSBC accounts cache is alleged to have produced a few Zimbabwean names hiding their wealth which never paid any taxes at all?

If skewed policies and disingenuous rhetoric is not addressed the country will continue to engage in orgy of lies where those that prefer to tell the truth are lynched for not conforming.

That is not serving the country. That is colluding with those sabotaging the economy. These people are in the same bracket with those that called for sanctions.

Another group that Zimbabwe cherishes but must look at are the multi-nationals. Evidence has proved that developing countries lose as much as $160 billion a year to the tax-dodging machinations of multi-nationals.

They have sophisticated accountants and tax lawyers on retainer.

The evidence is already clear in Zimbabwe with a lot of companies who reluctantly indigenised declaring losses or nominal profits. This is to ensure that the indigenous investor will never realise a worthy dividend.

This is the same group including their Zimbabwean executives that love to complain about poor infrastructural rehabilitation.

But isn’t it obvious that dodging taxes has an impact on fiscal spending? Paying taxes is a sacred responsibility of every citizen, including the corporate. But the ability to pay should be part of the guiding principle.

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