By Tonderai Maruke
Finance Minister Mthuli Ncube doesn’t get why people are outraged over his taxes. Compared to other countries, he argues, we are somewhere “in the middle” when it comes to paying taxes. He misses the point.
In his 2025 budget, Ncube introduced a battery of new taxes; from taxes on fast food to betting and rental income. He also announced a tough campaign to tax informal traders, stepped up measures to tax mining companies, and introduced taxes targeting private contractors. This added to a pile of taxes that he has introduced over recent years, including a tax on sugar content in drinks and the hugely unpopular Intermediated Money Transfer Tax (IMTT), which is charged on electronic transactions.
While his taxes causing outrage, Ncube held an online discussion on Twitter last week, and said Zimbabweans really aren’t taxed as high as they think. He said: “If you look at the tax-to-GDP ratio for Zimbabwe, it’s only about 18%. It is on the medium side, not on the high side.”
The tax-to-GDP ratio shows how much of a country’s economy is collected in taxes. It reflects the government’s financial health, an economy’s diversity, and how efficiently the government raises revenue. Richer countries tend to have higher ratios.
He has insisted on the IMTT, despite criticism that it is an additional cost for businesses and that, more damagingly, it discourages people from using the ZiG.
“We did some research which showed us that the IMTT was not discouraging citizens from using the ZiG, at all. There were other considerations, but IMTT was not one of them,” Ncube insists.
Uneven taxes
Ncube, however, needs to focus more on one key issue; how unfairly he has distributed the taxes, and the clumsy way he has gone about trying to make the informal market pay tax. More broadly, he ignores the trust deficit he has failed to fix.
On tax distribution, he admits as such, saying: “I think the issue is not the over-taxation of Zimbabweans. It might be the issue of the distribution of the tax, that, perhaps, it is falling more on others, and less on others. It’s an issue of what we call tax incidence, as opposed to the level of taxation.”
Because of his own policies, the government is earning less from traditional taxpayers. Company tax made up just 10.87% of taxes in 2023, down from 15.4% in 2022, according to ZIMRA. In 2020, corporate tax made up 19.71%. ZIMRA says corporate tax has been “impacted by a growing informal sector that is controlling more than 60% of activities in the economy”.
He has overcompensated for this – going after consumers, already facing low disposable incomes, with taxes such as the fast food tax.
Instead of growing the tax base, Ncube has piled the taxes on the segment of the market that already pays tax. IMTT, a tax that was meant to harvest money from informal trade, is not working. It is now only a burden on formal businesses; the informal trade it was meant to target has moved to cash transactions, the outcome of government policy on exchange rate.
In early 2020, IMTT was giving the government 12% of its revenue. Now, this is down to just 4.56%. This, according to ZIMRA, is due to “more usage of cash when transacting”.
As leading asset manager Imara says in its latest note to investors: “By its nature, the informal economy is tough to tax; the formal economy is a simpler target, but the more the burden put on this part of the economy to fund government, the less viable it becomes.”
Ncube’s approach to taxing informal businesses has been one of punishing them – there are penalties of up to US$12,000 per quarter for clothing boutiques – instead of policies that encourage growth and more structured formalisation.
A question of trust
According to a report by the Organisation for Economic Co-operation and Development, the average tax-to-GDP ratio in Africa was 16% in 2022. This is lower than in Asia and the Pacific (19.3%), Latin America and the Caribbean (LAC, 21.5%), and OECD countries (34.0%). South Africa’s tax-to-GDP ratio is 27%.
On why people dodge tax, the OECD report makes an observation that Mthuli and his team may want to chew over; it’s a question of trust: “Trust is at the core of the behaviour of individuals towards their tax obligations. Given the role of tax in state building and economic development relevant to achieve Agenda 2063, it is important from an African perspective to determine the interplay between trust and voluntary tax compliance and, in particular, to identify how tax administrations on the continent have crafted means of increasing taxpayers’ trust in the state.”
Zimbabweans would happily pay their taxes, if they could trust government to account for it better. Here’s a good place to start; Delta says it has paid the equivalent of US$31 million from the sugar content tax. That money is supposed to go into cancer treatment. As soon as Zimbabweans see the promised equipment, and less Ford Rangers, maybe they will start agreeing with Mthuli that they are paying fair tax.
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