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Diamonds are not forever

07 june 2012

The Zimbabwe Revenue Authority (ZIMRA) has become a pain in the backside of local companies as the tax collection agency lays siege on firms, scrounging for every little penny it is owed in order to sustain government operations, the Financial Gazette in Harare says.

The heat is certainly on, on ZIMRA. In order for Treasury to balance its books, the authority must bring in the desperately needed revenue to fund the government's unfashionable cash-budgeting system.

With a bloated Cabinet comprising more than 66 ministers, 19 or so deputy ministers and 10 provincial governors in a country of only 12 million people, it is not too difficult to see that the government's waistline is too big for the size of Zimbabwe's struggling economy.

From a modest revenue target of US$1 billion in 2009, Treasury has now moved the budget cap to US$4 billion. That alone makes one begin to understand the pressure being brought to bear on ZIMRA to keep the government alive.

In the first quarter, the tax authority reported a positive performance despite it being obvious that the country's economic health is failing. With the reckless talk of elections this year; the prohibitive operating costs and the controversial empowerment crusade which is keeping investors on the edge, Zimbabwe's economy has suffered heavy and unnecessary battering.

Despite all this, ZIMRA's total gross collections for the three months to March stood at US$773,7 million against a target of US$715,4 million, giving a positive variance of eight percent. Net collections amounted to US$723.9 million, translating to a positive variance of 1.2 percent.

A worrisome trend has, however, persisted whereby indirect taxes are weighing in with the lion's share of the revenue generated.

Value Added Tax (VAT) brought in US$292,7 million or 38 percent of total collections with excise duty and customs duty contributing US$177,4 million (23 percent of gross total). Individual taxes contributed 19 percent of gross total.

While we should say hats off to ZIMRA for their sterling efforts, it needs pointing out that the improved revenue performance does not in any way mean all is well within the country's economy. Things have fallen apart and companies, the economy's lifeblood, are on the brink of closure.

The failure by traditional companies to participate at this year's Zimbabwe International Trade Fair bears testimony to the burdens weighing down the economy.

But because taxes, pensions and National Social Security Authority contributions are statutory obligations that must be paid come hail, thunder or sunshine, most companies are foregoing other critical payments in order to comply with the statutes even though its threatening their viability: Failure to comply with the tax laws results in heavy penalties that could leave the offending companies in a worse off position.

As it is, most companies are running into serious salary arrears and are finding it difficult to pay their suppliers, something which will soon come back to haunt ZIMRA.

While the improved VAT is also a result of the upward revision in the tax-free threshold and the ongoing review in salaries, the fact that 46 percent of the revenue is generated from imports is a sure sign of the high levels of consumption chipping away the little foreign currency trickling into the economy.

Apart from contributing to the liquidity crunch that has pushed interest rates beyond affordability, the constrained capacity utilisation in industry is also not good for the future of the country.

The under-performance of Pay As You Earn also suggests the rapid retreat of the country's economy into the informal sector. ZIMRA must find ways to tax this shadowy economy to avoid squeezing the compliant companies to death.

One quick way to unlocking liquidity vital to both ZIMRA and the nation at large is to encourage the full utilisation, accountability and transparency in the sale of diamonds from the controversial Marange fields.

Presently, there is no openness in accounting for the diamond sales, hence, the Kimberley Process is always sniffing around for evidence to build its case against Zimbabwe.

The cloud of secrecy surrounding what Mbada Diamonds, Marange Resources, Anjin and other companies licensed to mine in Marange are doing is raising unnecessary eyebrows. Finance Minister, Tendai Biti, is also getting exasperated over the under-performance of the diamond sector, which continues to miss its revenue targets.

The opaqueness around how the Chiadzwa affairs are being conducted gives room to speculation that there could be some individuals who might be lining their pockets while the rest of the Zimbabweans are wallowing in abject poverty.

For all we know, Mines and Mining Development Minister, Obert Mpofu, once said the country has the potential to generate US$2 billion in diamonds revenue every year. This is quite a huge amount capable of bankrolling half the country's National Budget.

But from what we hear, there is very little going into Treasury's coffers yet the companies mining in Marange are exploiting the resource 24/7. There are not even estimates regarding the number of years it would take for the country to exhaust the resource nor the estimated resource in the belly of the Chiadzwa diamond fields.

ZIMRA's revenue performance also needs further breakdown to enable stakeholders to understand who is contributing what. We say this because other sectors have earned a reputation for conducting their business in a transparent manner.

For example, the Tobacco Industry Marketing Board is able to show the number of bales of the golden leaf auctioned at the tobacco auction floors throughout the tobacco selling season, the revenue earned from the tobacco sales and the amount paid in taxation. Similarly, the Zimbabwe Stock Exchange also conducts its business according to international best practice. In fact, its trading sessions are open to the public and at the close of business, stakeholders are given spreadsheets indicating how the market would have traded on each given day.

The same goes for trade on the commodity exchange where deals are conducted openly.

In the banking sector, the Reserve Bank of Zimbabwe also subjects banks to strict surveillance with information regarding how the banks would have traded being captured at the central bank on a daily basis.

The government also needs to go the extra mile by showing the public the contributions from all the key economic sectors, including from diamonds.

In his film Diamonds Are Forever (1971) based on Ian Fleming's 1956 novel of the same name, James Bond is featured impersonating a diamond smuggler to infiltrate a smuggling ring, and soon uncovering a plot by his old nemesis, Blofeld, to use the diamonds and build a giant laser. While we are by no means suggesting that someone could be up to no good with the diamond revenue, the nation needs reminding that the gemstones in Marange are not an infinite resource: We need to mine them and account for the revenue wisely otherwise foreigners and a few greedy individuals might exhaust them with no benefit accruing to the majority of Zimbabweans.

There might be need for an amnesty to allay the fears of those powerful citizens who might have broken the law and are determined to drag the whole country down with them.