Maravi

(HERALD) ‘Lower taxes key to economic growth’

COMMENT - More neoliberal loonacy. Higher incomes are they key to economic growth. Business may like tax breaks, but they need customers. " A lower income tax structure can act as an effective economic growth stimulant for Zimbabwe as it drives up consumption demand in the economy according to analysts. " Well those analysts are wrong. Zimbabwe needs state spending, from taxes gained from it's raw materials. Giving tax breaks to the mining companies contributes nothing, in fact it takes money away from government, and is possibly put into foreign corporate bank accounts as well. The really short point of this article: big business wants to pay less money in taxes. The problem is - that comes at the cost of the development of the country, through reduced money for social services and infrastructure creation by government.

‘Lower taxes key to economic growth’
By Tawanda Musarurwa

A lower income tax structure can act as an effective economic growth stimulant for Zimbabwe as it drives up consumption demand in the economy according to analysts. Data compiled by the Confederation of Zimbabwe Industries, capacity utilisation levels in the majority of the country’s manufacturers has improved to between 40 to 50 percent, a minimal improvement as a result of the prevailing market illiquidity and lack of credit.

According to Chamber of Mines economic policy and investments manager Mr Joseph Mverecha, the low aggregate demand, low capacity utilisation and low wage equilibrium prevailing in the economy require stimulation at least by way of lower income tax.

"The multi-currency system prevailing precludes any monetary policy stimuli; hence only fiscal stimulus is presently deterministic. That stimulus implies the need for lower taxes to kick-start consumption demand in the economy.

[Translation, having multiple currencies doesn't allow them to tinker through low interest rates, so all we can do is lower taxes. Typical monotarist economic garbage. Raise people's incomes through works programs, building infrastructure, etc. Stimulate the economy by raising the demand for locally produced goods and services, and you'll also put a dent into unemployment. And if lack of credit is the problem - 1) Get economic sanctions lifted and 2) Reduce bank lending rates down from the 20 plus percent to something closer to the rate of inflation, which is under 10 percent. - MrK]

"Lower taxes imply higher disposable incomes and higher domestic demand, output and employment; they enhance business re-investment through retained earnings, particularly key for an economy facing constrained access to international credit lines, as well as improve the country’s competitiveness as the taxation regime is a critical determinant of investment.

[Lower taxes do not 'imply' higher disposable demand. Too few people are being taxed, therefore even the short term effect is going to be minimal. But the starving of the state of capital is much more serious. If they want to raise incomes - introduce a living wage; have every Zimbabwean citizen be a member of a union. - MrK]

"In addition, lower taxes imply a lower alternative cost of capital as enhanced cash flow confers critical leverage in debt financing negotiations," he said.

In the 2011 National Budget statement, Finance Minister Tendai Biti increased the tax-free threshold for individual rates of tax to a minimum of US$225.

This was something of a midrate proposed by CZI of US$175 and US$300 by the Zimbabwe National Chamber of Commerce prior to the announcement of the Budget.

Any lowering of the income tax band, however, is essentially dependent on the enhancement of Zimbabwe’s broader tax system, which is said to consist of structural inefficiencies as well as a multiplicity of concessions and exemptions that are prejudicing the economy of critical sources of revenue.

The Government is currently seeking to improve revenue contribution to the country’s Gross Domestic Product by plugging gaps via reviewing mining taxation and introduction of the Fiscalised Electronic Registers among other measures.

However, there has not been much discussion at Governmental level on the implementation of the residence basis of taxation, an International Monetary Fund proposition as part of its 2009 technical assistance programme to the inclusive Government.

In terms of this proposed income tax system, any person who is considered to be a Zimbabwean resident will be taxed on their worldwide income regardless of its source. Simultaneously, non-residents will be taxed on their Zimbabwean source income.

The residence basis of taxation has the advantage of broadening the tax base through capturing revenue generated worldwide by resident individuals and corporations.

Fiscal space is currently squeezed, and there has been a general call for the authorities to strengthening economy-wide taxation systems.

Mr Mverecha, however, contends that any reform of the corporate tax system should take account of sector-unique business conditions.

"The mining industry, for instance, is inherently capital intensive and taxation should ideally incorporate recapitalisation requirements, in particular as the industry has not recapitalise to any significant degree over the past decade.

"Taxation should be forward looking and proactive implying that authorities should be ready to give up a dollar today if that will give rise to a five dollar revenue inflow over the medium term.

"This is the principle underpinning investment and the call for an improved investment environment and improved doing business conditions in Zimbabwe.

"A growing economy is the clearest guarantee for increased revenue flows, and economies grow only in response to investment," he said.

Among other broader taxation strengthening measures, the Government is currently in the process of reforming the country’s income tax law, and according to indications from the Ministry of Finance, a draft Income Tax Bill will be presented to Parliament in the second half of 2011.

Labels: CONFEDERATION OF ZIMBABWE INDUSTRIES, NEOLIBERALISM, TAXATION

posted by MrK @ 2:38 AM