Zim’s wealth tax: A rocky road ahead

Zimbabwe’s ambitious wealth tax, introduced in January this year, is yet to gain traction, with some analysts now questioning commitment to its implementation and potential impact

Despite targeting residential properties valued above US$250 000 and owned by individuals below 70 years, authorities have failed to collect even a single cent in the first eight months of existence, according to the latest Government’s financial accounts reviewed by this publication.

Despite the prevalence of high-value properties, including those owned by several Government officials, no money has been collected so far.

The tax rate was set at 1 percent of the property’s value, with a maximum annual liability of US$50 000.

It was initially intended to be collected by local councils when property rates are paid.

However, Zimbabwe Revenue Authority (ZIMRA), the State-tax collecting agency, is currently working on understanding similar tax systems in other countries to eventually start collecting the tax, according to Prof Mthuli Ncube, Minister of Finance, Economic Development and Investment Promotion.

Local councils are expected to play a crucial role in implementing the wealth tax by using the General Valuation Roll, a comprehensive list of properties, to assess the value of properties within their jurisdiction.

City valuers, appointed by local councils, will be responsible for valuing properties.

This valuation is crucial for various purposes, including property tax calculations.

Revenue generated from the wealth tax will be directed towards critical urban infrastructure projects, including roads, water systems, sewage networks, and community health centres.

The wealth tax has since sparked widespread condemnation from various stakeholders.

“The Government’s intention with the wealth tax is commendable, but its implementation has been slow,” Takesure Chirume, a Harare-based tax consultant said in an interview.

“There are concerns about the valuation process and the capacity of local authorities to effectively collect the tax.”

Chirume noted that while the tax has the potential to generate revenue, challenges such as administrative hurdles may hinder its success.

Some critics argue that the tax unfairly burdens pensioners who rely on rental income from their properties.

Many of these individuals suffered significant losses during the hyperinflationary period between 2000 and 2008, which saw their retirement savings severely depleted. The tax, they contend, erodes their financial security and ability to meet basic needs.

“We have property owners who fall within the taxable category but are struggling financially, relying solely on rental income from their properties. Can such individuals truly be classified as wealthy?” questioned an analyst from a local real estate firm.

Prof Ncube has argued that the existing tax structure favours the rich, and the new levy aimed to achieve a fairer contribution based on income levels.

He argued that the tax was expected to generate significant revenue for infrastructure development, addressing a longstanding challenge in Zimbabwe’s urban areas.

Minister Ncube explained that traditional wealth taxes often involve extensive lifestyle audits to assess an individual’s overall wealth, including income, assets like additional homes and cars, and other luxury possessions.

However, due to the resource-intensive nature of such audits, the Government has opted for a more targeted approach.

“The resources required to do a lifestyle audit can be onerous, so we took an easier way out to just focus on one asset (house) on that wealthy individual who is likely to possess an additional house,” he said.

Prof Ncube emphasised that the wealth tax is not a housing tax, but rather a means of taxing wealthy individuals to contribute to the nation’s economic development.

A confusing start

ZIMRA has clarified that local authorities will initially handle the collection of the recently introduced wealth tax and previous reports suggest that the tax authority is currently undertaking preparatory works and consultations to streamline the implementation process and ensure efficient tax collection.

“The law states that local authorities currently have the obligation to collect the Wealth Tax until ZIMRA has the capacity to do so,” ZIMRA said in response to a query from this publication.

However, ZIMRA commissioner for domestic taxes, Misheck Govha told a business conference early this year that the authority was currently mapping out strategies to ensure efficient tax collection.

“What is going to happen is that we have engaged ourselves and the Ministry of National Housing, and we are already mapping out the strategies to make sure that those who are eligible to pay are going to do so.

“We already have the statistics. So, what we are going to do is the valuation process, which is already underway and is being done by local authorities.

“Once we have that information, those that are eligible will be put in the database,” Govha said.

“It is you who are going to acquit yourselves that this is my principal private residence. We will do the visits and also the mapping, and we are also proposing we do that digitally.

“We have areas we have already demarcated. And, we are thinking that, for example … the Westgate area and Mutare Road in the northern suburbs … all those qualify. “The stand on its own is US$140 000 to US$250 000. So, what is going to be the value of the property if the stand is that much?”

He also assured taxpayers that the process would be rigorous enough to ensure that no eligible individual would evade the new tax.

“I know here we all know who is supposed to pay and who is not supposed to pay. So, let us start paying … there is no way you are going to escape this. “We are putting in place the regulations on how you are going to pay it. But for now, pay as you go.”-ebsinessweekl