Tax Reforms in Zimbabwe

Only available on StudyMode
  • Download(s) : 118
  • Published : May 30, 2013
Open Document
Text Preview
Project proposal and Tax Reform; Fiscal Policy-
Abstract
One of the key objectives of tax reforms in Zimbabwe was to ensure that the tax system could be harnessed to mitigate the perpetual fiscal imbalances. This would be achieved through tax policies intended to make the yield of individual taxes responsive to changes in national income. In addition, it was expected that the predominant taxes in the revenue would be those with highly elastic yields with respect to national income (or proxy bases). This study applies the concepts of elasticity and buoyancy to determine whether tax reforms in Zimbabwe achieved these objectives. Elasticities and buoyancies are computed for the pre-reform period as well as the post-reform period. Evidence suggests that reforms had a positive impact on the overall tax structure and on the individual tax handles. In fact, the elasticity of indirect taxes was low and that of direct taxes was high, especially after the reforms. Despite this positive impact, the reforms failed to make VAT responsive to changes in income, although VAT was predominant in the tax structure.

This was mainly aimed at reducing Government expenditures, particularly the recurrent expenditures, and redirecting resources to the productive sector. As a result the budget deficit was targeted to reach 5% of GDP by 1994/95 from a level of about 10 % of GDP, that is by end of the first phase of the reform programme. Reform the tax system to improve quality and resource allocation; Targeting to reduce the tax ratio from 35% of GDP to about 33% by the end of the reform period; Introduce cost forms, a case of Zimbabwe recovery measures to boost non-tax revenues; Removal of subsidies, which stood at 3.7% of GDP in1990/91; Reduction of the civil service wage bill from 16.5% of GDP to 12.9% by 1994/95; Allocate some resources to civil servants made redundant, the poor and the unemployed. In the literature tax reform includes key issues as:

• Dispersion of tax rates;
• De-emphasizing steeply progressive tax rate structure;
• Reducing the tax burden of export and import sectors; and • Strengthening tax administration.
The trend in total revenue to GDP in Zimbabwe remained almost constant - at levels around 27% of GDP. The research question will then be why the revenues remained constant throughout the reform period. One hypothesis could be an indication that the tax reforms which took place – if there were any at all - did not have an impact on revenue performance or this could be traced to delays in implementing improved tax administration measures. The research will have to establish this. THE RESEARCH PROBLEM

Despite close to a decade of economic reforms in Zimbabwe, the result has been further decline in economic performance. This lack of response to macroeconomic adjustment policies pointed to a need to revisit the more realistic, but much neglected socio-cultural, political and other institutional factors as possible explanatory variables of this observed poor performance. It is our contention, therefore, that it is not only economic factors, but also a host of other complex historical, political and socio-cultural determined factors that continue to impede the success of the economic reforms in Zimbabwe. A clear understanding of the role played by these factors in determining the reform outcomes in Zimbabwe is very important. 6 JUSTIFICATION OF THE STUDY

Knowing and understanding the key political and socio-cultural constraints to economic reforms in Zimbabwe can be of great importance for re-designing economic reform policy and its ultimate implementation. This can be done, for example, through drafting all-inclusive participatory policy reform interventions that reduce the severity of the identified political and cultural constraints and related impediments to undertaking meaningful economic reforms in Zimbabwe. In other words a deeper understanding of the political, institutional and socio-cultural factors that...
tracking img