30% Withholding taxes on contracts, possible threat to food security.

The pangs of the post COVID-19 crisis coupled with the recent Russia-Ukraine war has put unprecedented strains on the food supply worldwide. Zimbabwe has not been spared by the global economic woes which are further exacerbated by compounding effects of hyperinflation and onerous taxes that have left most taxpayers grappling to survive. One sector that is key to the decent survival of many is the agricultural sector. The sector contributes to securing people’s livelihood. In Zimbabwe largely influences the economic, social and political lives of the majority of people in the country. It is also the source of sustenance for most rural Zimbabweans who play a big part in providing food security to the country. At a commercial level, the sector produces export crops such as tobacco, cotton and horticulture products which bring in foreign currency and improves the balance of payment. The agriculture sector is one of the biggest employers in Zimbabwe and the key to the success of downstream industries, among them the manufacturing industry. Government has led efforts to minimise the tax burden on farmers by introducing suspension of duty, incentives, and special deductions. While most of these incentives are available for enjoyment by all farmers, some incentives have only been made available to a group of farmers. Incentives such as tax exemptions on harvest submitted to the Grain Marketing Board (GMB) are only enjoyed by farmers of edible crops submitted to the GMB, tobacco farmers and out growers for example, are excluded from this tax incentive. The presence of farmers who are still struggling to meet ends meet begs the question, “why not suspend more taxes especially the 30% withholding taxes on farmers?”

Withholding taxes on contracts is withheld on amounts payable to all persons who enter contracts. Withholding tax on contracts simply put is a tax which is deducted from payments due to suppliers that do not possess a valid tax clearance. The amount is withheld by the payer for remission to Zimra. This tax was enacted in terms of section 80 of the Income Tax Act and its basic purpose is to ensure payment of tax by all businesspersons. Withholding tax (WHT), also known as retention tax, is an effective tool to combat tax evasion and facilitate easy collection of tax by the fiscus. In recent years, the withholding tax on contracts was increased from 10% to 30% in a move which is seen as a measure aimed at increasing tax compliance by all businesspersons in the country. The threshold amount for which withholding tax has been levied currently stands at ZWL500 000 or USD1 000.00. These are aggregate amounts in a tax year.

It is a government requirement for the payer of income to withhold or deduct tax from the payment (income) accruing to the payee and remit that tax to Zimbabwe Revenue Authority (ZIMRA). The withholding collection mechanism is operated in such a way that it is the payer not the payee, who remits the tax to ZIMRA, thus, WHT is deducted at source, the payee receives the net of income after tax. Income which has suffered withholding tax on contracts is not subject to further taxation.

In Zimbabwe a dilemma is arising in which on one hand, there is the government trying to raise taxes to finance operations and on the other hand, raising costs of production, farmers have not been spared from this. As hyperinflation has eroded the value of the Zimbabwean dollar, prices for inputs, including seeds and fertilizer, have soared. That has left many small-scale farmers unable to close the gap between increasingly costly agricultural supplies and their little savings. With this background a submission that having withholding taxes levied on farmers is not helping the situation but causing insult to injury is not far-fetched.

While, we can imagine how the increased rate of withholding tax has caused alarm among the uncompliant, it would be important to note that the relationship between business survival and payment of taxes is of great importance. Most small-scale farmers do not have capacity to implement reporting systems that lead to tax compliance, hence a greater deal of them default to withholding tax on contracts.  These small-scale commercial farmers find themselves losing the income they could have used to increase productivity. This development is a drawback on the overall national prosperity as these farmers contribute significantly to the national agricultural productivity.

As the war continues, the potential scope of physical and economic disruptions to food and energy systems rises. These effects may have swift and severe consequences in regions and industries far from the initial occurrence. Unlike the previous global food-price crisis, driven by the 2007–2008 financial crash, the current upheaval comes after governments and households have spent two years coping with the COVID-19 pandemic, the most significant economic shock since World War II. The government needs to prepare for the likelihood of food shortages by positioning farmers at the forefront of agricultural intensification through even more tax concessions on the very punitive tax measures such as withholding tax on contract.

In conclusion, the obstacles that farmers face due to administrative difficulty in attaining tax clearances coupled with the lack of knowledge clearly proves that removing withholding taxes on farmers will be a major step in securing food security. Although the approach will be regarded as drastic for the fiscus, it should be viewed as a short-term solution whilst government speculate on finding long lasting solutions such as educational workshops to help farmers formalise and register their businesses.