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Taxation system needs overhaul
The Herald (Zimbabwe)
April 02, 2008

http://allafrica.com/stories/200804020141.html

The raising of the thresholds for each tax bracket is welcome but the Zimbabwe system of income taxes, while light on the very poor, still hammers middle-income earners hard.

The raising of the thresholds was coupled with an increase in tax rates for higher slices of income, but a basic tax of 50 percent or more was imposed on all slices of taxable income above $5 billion a month. Even the taxes of 47,5 percent on the previous slice of $2,2 billion means that PAYE deductions will be almost 50 percent on this slice once the Aids levy is added on.

There is nothing inherently wrong with high tax rates in certain circumstances. Indeed there are good reasons to ensure that senior management of certain enterprises have to share the risks of that enterprise and not just milk the income in bad times. In other words, high basic income taxes, coupled with lower taxes for investment income, can at a certain level ensure that top management share the risks with their business's owners. Instead of receiving a very high salary they receive a decent competence but the real gravy comes from risk-sharing systems, such as equity ownership or through stock options.

Such systems are forced on them by a desire to preserve take-home income. When the business they manage prospers they are well rewarded and when times are bad they are not. But for most people in employment such strategies are not a viable option. They get a regular salary or wage and have their income taxes deducted by their employer. They do not make the fundamental decisions that lead to prosperity or loss, but are paid according to their skills and output. In this group are included many whose work does not create commercial profit: teachers and nurses being two obvious large sections. We feel it is wrong that such groups should pay very high taxes on even a portion of their modest incomes. But we agree that they should pay something. Governments need to be run and need money to do this.

We would like to see the lower brackets widened considerably, especially the 25 percent bracket. The modest zero-tax bracket is mainly there to shield the very poor and prevent the administrative nightmare of spending billions to raise millions. Basically that bracket has to be set to ensure domestic workers are not taxed. We would then like to suggest the 25 percent bracket is widened to include the income of most ordinary skilled workers. A good starting point might be to ensure the majority of school-teachers have their whole income in this bracket.

A moderately higher rate can raise a bit more income from those able to afford this, but still ensuring that a person outside the top levels of commercial management spends more time working for himself than the Government. A high rate, as we have already suggested, can then be imposed as a social, rather than a revenue measure, to force top decision-makers to share the risks, and rewards, of the owners of the businesses they run. We need to remember that through VAT, customs and excise duties that they Government does get a reasonable percentage of the take-home pay of most people. And the rich tend to buy more things that have higher consumer taxes.

Taxes are tricky, but while we applaud the regular moving of brackets to cope with inflation, we feel that a more thorough overhaul might be required as well.

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