Tax evasion, political/public corruption and increased taxation: evidence from Zimbabwe
| Published date | 26 October 2020 |
| Pages | 300-319 |
| DOI | https://doi.org/10.1108/JFC-07-2020-0133 |
| Date | 26 October 2020 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Ophias Kurauone,Yusheng Kong,Stephen Mago,Huaping Sun,Takuriramunashe Famba,Simbarashe Muzamhindo |
Tax evasion, political/public
corruption and increased taxation:
evidence from Zimbabwe
Ophias Kurauone and Yusheng Kong
School of Finance and Economics, Jiangsu University, Zhenjiang, China
Stephen Mago
Nelson Mandela University, Port Elizabeth, South Africa, and
Huaping Sun,Takuriramunashe Famba and
Simbarashe Muzamhindo
School of Finance and Economics, Jiangsu University, Zhenjiang, China
Abstract
Purpose –The purpose of this paper is to examine the relationship between tax evasion, political/public
corruptionand increased taxation in Zimbabwe’s small and medium-sizedenterprises (SMEs).
Design/methodology/approach –The study as a descriptive survey used questionnaires and
interviewsas research instruments for collecting data.
Findings –The findings revealed that most SMEs are no longer paying some form of taxes as expected
since the Government of Zimbabwe through the Ministry of Finance and Reserve Bank of Zimbabwe
introducedthe 2% tax levy on all bank electronic transactionsgreater than US$10 from October 2018.
Originality/value –The paper recommends that the government should create an independent anti-
corruption committee with strong monitoring and regulatory mechanism so as to fight political/public
corruption; hence,creating a paradigm of trust and confidence among different economic players.Lastly, the
tax authoritiesshould engage all the key economic players when crafting the country’s tax laws/ratesso as to
promote a sense of equity, equalityand economic transparency among citizens.
Keywords Tax evasion, Political and public corruption, High tax rates, Black market,
Public finance, Survey
Paper type Research paper
1. Introduction and background
The Global Financial Integrity (2015) claims that Zimbabwe has lost US$12bn in the past
three decades because of corrupt activities that include tax evasion and other illegal
commercial activities.Empirical findings from the World Bank (2015) estimates that 54% of
the companies across developing countries do not report all the taxable revenues to the
relevant tax authorities while Artavinis et al. (2015) gave an estimation of around 36% of
revenue losses across European countries.In Zimbabwe, corporate companies contribute an
average of 12% of the total revenues collected by Zimbabwe Revenue Authority (ZIMRA)
annually. Sadly, because of greediness and rampant corruption by some individuals in the
economic system, revenue collected by ZIMRA in some sectors of the economy such as
This study was supported by the National Natural Science Foundation of China (71973054 and
71774071).
JFC
28,1
300
Journalof Financial Crime
Vol.28 No. 1, 2021
pp. 300-319
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2020-0133
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
corporate firms for the benefit of the economy is still belowthe expected target. The official
figures from ZIMRA showthat the net collections for 2014 were US$3.6bn againsta target of
US$3.82bn, which indicate an adverse variance of 6% (Ministry of Finance, 2014).
Furthermore, during the period 2015–2016, corporate tax contribution significantly
decreased by 19.8% from US$424.7m to US$340.7m and contributed only 10% to the total
revenues collected by ZIMRA. The preceding statisticssubstantiate that the government of
Zimbabwe’s economic goals continue to be severely affected by numerous issues of tax
evasion reportedin some sectors of the economy especially corporate firms.
Zimbabwe’s economic downturn began as early as 1990s after the introduction of
Economic Structural Adjustment Program which resulted in major and multinational
companies closing down or downsizing their operations thus reducingrevenue collected by
ZIMRA. Anecdotal evidence claims that most foreign companies left the country and
invested in neighboring countries such as South Africa, Zambia, Mozambique and
Botswana. A few companies and small and medium-sized enterprises (SMEs) began to
contribute significantly to the economy of Zimbabwe providing a tax to the fiscus for
financing the country’s social and economic goals. Therefore, the main focus is for the tax
authorities in Zimbabwe to maximize tax revenue collections through the widening of
dwindling tax base and operation of efficient tax systems which has been criticized by
various players in the economy sectors such as Confederation of Zimbabwe Industries,
economists, internationalinstitutions such as the International Monetary Fund, World Bank
and United Nation and other concerned stakeholders such as the society. The collection of
revenues in Zimbabwe is solely carriedout by the ZIMRA.
SMEs play important roles in the economic growth and sustainable development of any
economy (Ariyo, 2008). They may look small or inconsequential but actually, they are the
foundation of any economically developednation. Similarly, the Reserve Bank of Zimbabwe
(2017) outlines that SMEs account for half of the world’s gross domestic product (GDP),
employ almost two-thirds of the global workforceand have been identified as the engine for
economic growth in developing economies. The potentialbenefits of SMEs to any economy
include a contribution to the economy in terms of goods and services which provide
revenues to the fiscus in terms of value added tax. Moreover,SMEs develop a pool of skilled
and semi-skilled workerswho will contribute to the fiscus in form of pay as you earn and the
investment income from the industrial performance among others. Nevertheless, prior
literature from Lopez (2017) asserts that informal entrepreneurs avoid paying taxes by
staying small, while formalentrepreneurs have the choice of complying with the taxcode or
spending resources to reduce their fiscal outlay. The above suggested that despite these
expected revenue contributions from taxpayers in the economic sector, small firms in
developing countries such as Zimbabwe tend to evade tax thus affecting the effective and
efficient collectionof revenue despite that they are the key drivers of the economic growth.
Nonetheless, the revenue collections from the third quarter of 2018 increased from US
$967.76m to US$1.089bn, which shows a significant improvement of 22.56% despite the
country facing economic challenges characterized by chronic foreign currency shortages,
hyperinflation and shortages of goods and services which pave way for the black market
and tax corruption. Such conflicting economicphenomena motivated us to research on this
macroeconomic problemfocusing on revenue collection and impediments in Zimbabwe.
On the other hand, economists and business analysts believe that the recorded revenue
increase between third quarter of 2018 and the first quarter of 2019 is probably because of
hyperinflation and the continuous loss of value in local Zimbabwean bond notes and real-
time gross settlement (RTGS) against the US dollars (Figure 2). Additionally, different
Public
corruption and
increased
taxation
301
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