Tax Reforms in Zimbabwe free essay sample

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. We will write a custom essay sample on Tax Reforms in Zimbabwe or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page % 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. 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 po litical 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 determine the success or failure of economic reforms in Zimbabwe is of vital importance for policy-making reasons, hence the need to undertake this study. 7 RESEARCH OBJECTIVES The general objective of the research project is to increase the body of knowledge for the design and implementation of future reforms in Zimbabwe, including lessons that can be learnt from the failed past reform efforts. The specific objectives of this research, however, are: †¢ To provide analysis and evidence of reasons for the failure of reform efforts in Zimbabwe to provide analysis and evidence or no evidence of the role of stakeholders in the design, implementation and outcomes of the reform programmes in Zimbabwe, as well as methods used to consult and ensure or not to ensure their participation in the reform process; †¢ To assess the social costs and benefits of the reform process and to identify who the potential losers were or those who shouldered the burden of adjustment; †¢ To increase the domestic capacity to undertake research related to major economic and political reform in Zimbabwe; and †¢ To derive some policy implications based on the findings of this research that will find their way into formulation of future reform policies in Zimbabwe. RESEARCH QUESTIONS Essentially three broad research questions that are going to be addressed by this study are as follows: W ith reference to the failed Zimbabwean reform efforts: †¢ Why did Zimbabwe undertake reforms? †¢ What factors enabled Zimbabwe to adopt reforms and how did these factors shape reform design and implementation? †¢ How well did the reforms perform and, what were the results? With special reference to the failed Zimbabwean reform efforts, answers will also be sought for the following specific additional questions: †¢ Which main stakeholder groups with an interest in the country’s economic and political reforms were consulted or are being consulted? †¢ What role did lack of information and awareness about the reform programmes result in lack of ownership and therefore poor participation by all the concerned stakeholders, particularly the poor? †¢ Is it true that lack of political will and lobbying by certain interested groups, which saw their interests threatened by the reforms explains the failure of Zimbabwe’s economic reforms? If the above is true, what should have been done or should be done in the future to minimize the resistance to the reform process by those interest groups that are bound to lose as a result of the form process? †¢ Is it true that adverse and often change resistant ideologies, socio-cultural and so cietal norms also explain the failure of meaningful reforms to take place in Zimbabwe? HYPOTHESES This research project, in addition to the above research questions, will also be fundamentally guided by six testable hypotheses. These hypotheses are: †¢ Domestic crises triggered/beget reforms in Zimbabwe. †¢ External factors shaped Zimbabwe’s reforms, particularly the collapse of socialism, the influence of the IMF and the World Bank, world economy shocks, and learning/imitation from other countries. Reforms in Zimbabwe were blocked after they have been started as individual uncertainty gets resolved and losers became organized and asked for higher compensation and finally stopped their continuation. †¢ Lack of an explicit involvement or consultation of all the relevant stakeholders at the reform policy formulation/design and implementation stages, implying lack of consensus building and broad ownership of reforms, is partly responsible for the failure of the re form process in Zimbabwe. RESEARCH METHODOLOGY The Zimbabwean research team advocates for an inclusive and consultative-based research process targeting all the relevant stakeholders, particularly the poor communities, which are in most cases adversely affected by the reform process. This is because some of the conventional research methodologies used in Zimbabwe in the past to study the reform processes did not include a participatory approach to doing research that can enhance both relevance and effectiveness of the research process itself. Such conventional research methodologies have in most cases produced disappointing results, which have further marginalized the poor and therefore continue to exclude them from crucial government decision-making processes in Zimbabwe. It is against this background that the active participation of local actors, the poor, policy makers, representatives of the business community, disadvantaged groups and other interested stakeholders in the Zimbabwean research project is of fundamental importance. This is because it is going to be part of the research team’s strategy to nurture participatory-based policy making, implementation and evaluation processes as well as social analysis in Zimbabwe. DATA COLLECTION METHODS Since studying reforms in Zimbabwe calls for the need to gather both qualitative and quantitative information from our respondents, in this study, besides the use of available secondary data, e. g. documents, reports, books, files, statistics, etc. , additional qualitative and quantitative information is going to be gathered through the use of individual case studies. Much emphasis will also be put on personal observations and intensive informal discussions with respondents and key informants during the study period and providing a well-documented description of the reform process and outcomes in Zimbabwe. This description is going to rely heavily on secondary data to be gathered from both national and international sources and will involve summarizing empirical results obtained by other studies and discussing the performance of economic variables such growth, investment, exports, savings, macro stability and competitiveness rankings; social indicators such as income/assets distribution, poverty, earnings, health and nutritional status, education enrolment, and social expenditure levels; and political indicators such as political awareness, autonomy, confidence/credibility in government; etc. Real changes in exports and imports are good indicators of effectiveness of trade liberalization policies during reforms and therefore will calculate in the process of doing the study. The outcome of the financial reform will be analysed by observing the following: †¢ Ratio of broad money to GDP; †¢ Concentration ratio as measured by share of assets of largest banks to total bank assets; and †¢ Price stability or inflation trends overtime. Another indicator, however, which is associated with financial reform, is desegmentation of the financial sector so that they can offer a broad array of financial services. The new types of products, which were introduced during the reform will also be catalogued and analysed. The effectiveness of tax reform measures will be assessed through the following amongst others: †¢ Tax revenue to GDP ratio; and †¢ Ratio of international trade taxes to total revenue. The above will be aided by the conduct of an analytical narrative of the whole reform process, which will help us to analyse the causal factors or the driving forces behind the reform. In addition micro level case studies will be used to qualitatively test of some our hypothesis. Informal interviews are going to be carried out with all important persons who were advisers, academics, donor agencies, business leaders, union leaders, consumer and student representatives, farmers’ and employers’ representatives, central bank and government officials as well as heads of institutions, committees and task forces that were created to strengthen state capacity to implement reforms during the reform period.