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Tax Offences in Zimbabwe. A Critical Analysis of the Effectiveness of Strategies and Initiatives that are being pursued by ZIMRA

Forschungsarbeit 2015 88 Seiten

BWL - Rechnungswesen, Bilanzierung, Steuern

Leseprobe

Table of Contents

CHAPTER 1 INTRODUCTION AND BACKGROUND
1.1 Introduction
1.2 Background of the Study
1.3 Problem Statement
1.4 Research Objectives
1.5 Hypothesis
1.6 Justification of the Study
1.7 Research Questions
1.8 Limitations
1.9 Delimitation
1.10 Conclusion

CHAPTER 2 LITERETURE REVIEW
2.1 Introduction
2.2 Theoretical Literature Review
2.2.1 Definition of Terms
2.2.1.1 Tax
2.2.1.2 Tax Offences:
2.2.2 Conceptual Framework
2.2.2.1 The Deterrence Model and Equities and Exchange Theory
2.2.2.2 The Slippery Slope Model
2.2.2.3 Political Legitimacy Theory
2.2.3 Main Tax Offences in Zimbabwe
2.2.3.1 Income Tax, Presumptive Tax and PAYE offences:
2.2.3.2 Value Added Tax offences according to the VAT Act:
2.2.3.3 Capital Gains Tax offences in:
2.2.4 Causes of Tax Offences
2.2.4.1 High compliance Costs
2.2.4.2 High Tax Rates
2.2.4.3 Fairness of Tax Systems
2.2.4.4 Complexity of Tax Laws and Procedures
2.2.4.5 Limited Punitive Action to Tax Offenders
2.2.4.6 Weak Capacity to detect and Prosecute Tax Offenders
2.2.4.7 Low Tax Morale
2.2.4.8 Existence of Virtual Income among Taxpayers
2.2.4.9 Technological Advancement
2.2.4.10 High levels of corruption
2.2.5 Measures to Address Tax Offences
2.2.5.1 The use of power to influence behaviour of tax payers
2.2.5.2 Internal and external Audits
2.2.5.3 Tax Benefits
2.2.5.4 Tax Education
2.2.5.5 Asset Declaration and Whistle Blowing in reducing corruption
2.2.5.6 Records keeping and control
2.3 Empirical Literature Review
2.4 Conclusion

CHAPTER 3 METHODOLOGY
3.1 Introduction
3.2 Research Philosophy
3.3 Research Design and justification of the research design
3.4 Sampling
3.4.1 Sampling Techniques, Procedures and Methods
3.5 Data collection methods and Data sources
3.5.1 Primary Data and collection Methods
3.5.2 Secondary Data
3.6 Data Reliability and Validation Checks
3.7 Ethical Considerations
3.8 Methods of Data Analysis and Interpretation
3.8.1 Data Verification, Coding and Capturing
3.8.2 Use of Measures of Central Tendencies, charts and graphs
3.9 Conclusion

CHAPTER 4 DATA ANALYSIS AND INTERPRETATION OF RESULTS
4.1 Introduction
4.2 Analysis of Questionnaire Response Rate
4.2.1 Analysis of Demographic Data
4.2.2 Findings on knowledge of Tax offences
4.2.3 Views of Respondents on the causes of Tax offences in Zimbabwe
4.2.4 Areas where Tax offences are common
4.2.5 Common Tax offences
4.2.6 Effectiveness of current measures and Strategies of Reducing Tax Offences
4.3 Analysis of Interview Responses
4.4. Conclusion

CHAPTER 5 CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
5.2 Summary of findings
5.3 Proposals for additions to the Legislative mechanisms
5.3.1 Unannounced audits
5.3.2 Mystery shopping
4.3.3 Prosecution, imprisonment and publication of tax offenders
5.4 Recommendations on Administrative Measures
5.4.1 Expanding the E-Services
5.4.2 Enhancing Taxpayer Registration and De-registration
5.4.3 Giving Special Treatment to Informal Traders the Same Way Large Taxpayers are treated
5.4.4 Improved accessibility of information to taxpayers
5.4.5 Fighting Corruption
5.5 Area for further Investigation

REFERENCES

APPENDICES

Appendix A: Research Questionnaire

Appendix B: Interview Guide

List of Tables

Table 4.1: Statistics on Response Rate

Table 4.2: Gender Participation Rate

Table 4.3: Academic Qualification

Table 4.4: Occupation

Table: 4.5: Working Experience

Table4.6: Respondents who understand the term Tax Offences

Table 4.7: Views of Respondents on Tax Offences

Table 4.9: Areas where Tax Offences are Common

Table 4.10: Common Tax Offences in Zimbabwe

Table 4.11: Effectiveness of Measures of Reducing Tax Offences

List of Figures

Figure 1.1: Tax revenue, capital expenditure and recurrent expenditure as % of GDP

Figure 1.2: Tax heads and their contributions to revenue and GDP, Fiscal year 2011

Figure 2.1: Factors that that contribute to most tax offences

Figure 2.2: Time to prepare and pay tax in hours

Figure 2.3: Tax Laffer curve

Figure 2.4: Measures to reduce tax offences

Figure 4.1 below shows an analysis of the response pattern in the sample stratum

Figure 4.2: Gender Participation

Figure 4.3: An analysis of Age of Respondents

Figure 4.4: Findings on Academic Qualifications of Respondents

Figure 4.5: Occupation

Figure 4.6: An Analysis Working Experience of Respondent

Figure 4.7: What Respondents Know about the level of Tax Offence in Zimbabwe

Figure 4.8: High Compliance costs are a cause of most tax offences

Figure: 4.9 Weak Capacities to Detect and Prosecute Tax Offenders

Figure 4.10: Existence of Virtual Financial Status among Taxpayers

Figure 4.11: Perceived Unfairness of the Tax System

Figure 4.12: Complexity of Tax Laws and Procedures

Figure 4.12: Low Tax Moral

Figure 4.13: High Tax Rates

Figure 4.14: Technological advancement

Figure 4.15: Corrupt Tendencies among Tax officials and Taxpayers

Figure 4.16: Limited Punitive Action among Tax Offenders

Figure 4.17: Common Tax Offences in Zimbabwe

Figure 4.18: Simplification of tax laws

Figure 4.19: Increase audit frequencies

Figure 4.20: Taxpayer education

Figure 4.21: Penalties and fines

Figure 4.22: Prosecution of serious tax offenders

Figure 4.23: Whistle blowing to reduce corruption

Figure 4.24: Naming and Shaming of Tax Offenders

List of Acronyms

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CHAPTER 1 INTRODUCTION AND BACKGROUND

1.1 Introduction

Like any other developing country, Zimbabwe has been finding it difficult to raise enough tax revenues to spearhead its developmental aspirations despite myriads of policies and laws that are in place to improve tax administration and reduce tax offences. The existence of large informal sector makes it inevitable to have unaccounted tax offenders. For Zimbabwe, taxes are a critical source of government revenue, with contributions of an average of 88.1% of total government revenue between the years 1980 to 1989 and about 89% between 1990 and 1999, Mukura et al (2013). In the new millennium, tax revenues averaged 95.6 percent of total revenues, peaking to 98 percent in 2005, (Desmond Ndedzu et al 2013). In recent periods a strong resurgence of a large informal sector constrained the government’s capacity to raise sufficient revenue, and thus revenue in proportion of total spending has been declining. These statistics indicate that a good tax system is an initial requirement for Zimbabwe to gain forward momentum on its economic strides. Zimbabwe has been and is currently implementing ambitious and aggressive control mechanisms to reduce tax offences through the Zimbabwe Revenue Authority, (ZIMRA), so that it can have a good tax system. According to Charles Kabera (2011), a good tax system is one which is robust, efficient and ensures maximum compliance and has effective control mechanisms.

While it is admitted that Zimbabwe has laws and administrative strategies to reduce tax offenders, it would be a gross misrepresentation of facts to conclude that it now has a good tax system in this environment where tax evasion, tax avoidance, tax fraud among others have become a common behavior among most citizens of Zimbabwe. One wonders whether these laws and strategies are effective enough to achieve their intended objectives. Most empirical studies on the effectiveness of tax offences control mechanisms have been carried out in Rwanda and the United States of America. Very few studies have tested the effectiveness of laws and strategies to reduce tax offences in Zimbabwe. This study is motivated by lack of empirical arguments on this area.

This research took a closer analysis at the tax offences that are being committed in Zimbabwe. It then looked at legal and administrative strategies pursued by ZIMRA in reducing tax offences in Zimbabwe. Furthermore, the researcher carried out a comprehensive study to identify best practices that are employed by other tax administrations in detection and prevention of violation of tax laws.

1.2 Background of the Study

When revenues are reaped from the production of goods and services, there should be a positive relationship between revenue collected and national income, Gareth D. Myles (2007). However, there has been no constant relationship between revenue collection and Gross Domestic Product (GDP). Figure 1 shows that in the early years of ZIMRA’s inception, 2001to 2004, revenue collections as percentages of respective GDPs were constant, averaging between 20% and 25%. Maximum revenue was collected in 2005 where 40% was collected from the total value of goods and services with the least figure of less than 5% being recorded in 2008. This is a sign that Zimbabwe is losing much revenue through tax evasion and avoidance.

Figure 1.1: Tax revenue, capital expenditure and recurrent expenditure as % of GDP

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Source: ZEPARU presentation on Enhancing Zimbabwe Fiscal Space, 2010

Over the years, it has been introducing various strategies to reduce levels of tax offences and has been enforcing the provisions of legal statutes with the idea of achieving the same goal. In a bid to enhance viability and efficient internal and external controls to reduce these leakages, it sacrificed huge sums of money on establishing accounting software such as SAP (Systems Application Program) and ASYCUDA (Automated Systems Customs Data) and implementing the relevant controls to ensure continued viability, The Rev News (May 2012). Although the organization has committed itself to the large capital expenditure on accounting packages and internal controls, there are still widespread claims and perceptions that there are a lot of leakages through unscrupulous activities within and outside the organization. This raises the fundamental question of whether the whole effort on the investment was in vain.

In a recent study carried out by the African Forum and Road mark on Debt and Development (AFRODAD), it was noted that revenue collection in Zimbabwe is still poor with much revenue being lost through failure to collect from the informal sector and that this was attributed to weaknesses in policies and to the Zimbabwe Revenue Authority (ZIMRA)’s failure to effectively monitor business transaction.

Zimbabwe has a very punitive regulatory framework in the form of statutes which call for heavy penalties and interests on tax offenders. Penalties are graded depending on the gravity of the offence. The least among the fines is level 1($5) and/or 3 months imprisonment for lighter offences and the heaviest is level 14 ($5000) and/or ten years imprisonment for severe offences.

Reports of corruption on the part of ZIMRA officials are still high resulting in the loss of revenue from non-payment of taxes. However, ZIMRA has managed to reduce the level of corruption significantly through internal and external controls such as the introduction of the Loss Control division, whistle blowing, asset declaration, segregation of duties, automation and campaigns against corruption.

Several strategies have been used to reduce the rate of tax evasion in the informal sector. The informal sector represents a significant proportion of the industry and that’s the reason why it should be brought into the tax net. However, not much progress has been made on this although some are complying. Informal traders commit deliberate offences knowing that ZIMRA has no capacity to audit everyone. Therefore, they always evade tax when they can. Strategies which have been used to encourage small businesses to pay tax include offering amnesty to noncompliant taxpayers. Awareness campaigns on the importance of paying tax are also used as a strategy to develop a culture of paying tax in the nation.

In addition to the revision of the Income Tax Act to expand the tax base, the government has introduced measures to limit losses in Value-Added Tax (VAT) collections, and among them is the introduction of the fiscal cash registers. VAT is one of the major contributors to tax revenue, as depicted in Table 2, and as such, robust measures to reduce revenue leakages are vital in this area. Pay-As-You-Earn (PAYE) is another revenue booster which in 2011 contributed more revenue ahead of other tax heads, ZIMRA Revenue Report (2011). It is more desirable for the redistributive Pay as You Earn (PAYE) to contribute more to tax revenue as this improves equity of the tax system. Corporate tax remains low as industry continues to operate below capacity.

However, not much is being collected from the informal sector though it is contributing 60% to the Gross Domestic Product (GDP) due to the fact that most of these informal traders falsely declare their profits and numbers of their employees as most of them hire workers on short term bases without keeping any record for them, making it difficult for ZIMRA to administer the amounts withheld by these firms as PAYE. If the malpractices in the informal sector are minimized, the revenue base can be widened. The following table shows how tax heads that are under the administration of ZIMRA performed during 2011, a year which is considered to have performed better since dollarization.

Figure 1.2: Tax heads and their contributions to revenue and GDP, Fiscal year 2011

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Tax heads and their contributions to revenue and GDP, Fiscal year 2011

From this background, the researcher finds it noble to analyse the causes of most tax offences that are being committed and suggesting ways of improving the effectiveness of these strategies.

1.3 Problem Statement

For many years, people have debated the effectiveness of legal and administrative measures that are being implemented by ZIMRA in a bid to reduce tax offences and improve revenue collection. This issue has been controversial because of inconsistent evidence on results in the study of this area, with some arguing that the laws and administrative strategies are effective while others speak to the contrary.

At first glance, it may seem obvious that heavy penalties, internal and external tax audits, tax amnesties, taxpayers’ education among other control mechanisms, reduce the rate at which tax offences are being committed. Taxpayers’ education improves tax awareness and reduces the number of people who commit tax offences unknowingly while heavy penalties including imprisonment is a law which is there to punish tax offenders. Tax amnesties are there to reduce the audit work and allow voluntary self-disclosure of tax positions of tax offenders and creating potential audit cases.

However, practical evidence shows that the number of offenders who are committing tax frauds is surprisingly increasing despite the existence of control mechanisms. This has always

manifested through huge amounts of evaded tax which are revealed through audits each year despite heavy penalties that are in place. The debt ratio is surprisingly increasing even for withholding taxes and Value Added Tax. Now, the question is, of all the laws and strategies that are in place, how effective are they in controlling tax offences? What mechanisms should ZIMRA put in place in order to effectively address the problem of tax offences?

1.4 Research Objectives

a. To identify tax offences that are being committed in Zimbabwe
b. To identify legal and tax administrative strategies which are in place to address tax offences.
c. To effectiveness of strategies which are in place to reduce tax offences
d. To recommend mechanisms that should be adopted by ZIMRA in controlling tax offences

1.5 Hypothesis

H0: The current tax offences control mechanisms are effective and there are no weaknesses and no tax offenders in Zimbabwe.

H1: the current control mechanisms have inherent weaknesses and there is need for improvement if the country is to achieve its economic objectives.

1.6 Justification of the Study

Having appreciated those researches on the effectiveness of measures pursued by governments to reduce tax offences that were carried out in most American and African countries, there is still incomplete evidence and literature on this area in Zimbabwe, yet it is one of the major countries which records high rates of tax evasion and corruption. Therefore, this paper serves to add literature to the current existing literature on this area.

1.7 Research Questions

a. What are the common tax offences that are being committed in Zimbabwe?
b. What strategies are there to address the problem of tax offences?
c. What are the strength and weaknesses of the current measures?
d. What is the recommended step to make if the country is to increase revenue collections?

1.8 Limitations

The supply of unreliable information by some respondents: This should not be overlooked as the levels of honesty vary from one individual to the other. Respondents may be unwilling to offer information relating to their misconduct as it might be revealing negative mal-performance on their part. Therefore, respondents will be requested to be as objective as possible in answering the questionnaires and be encouraged that the information is strictly for academic purposes.

Lack of cooperativeness from respondents: Some Answers to questionnaires maybe not be retrieved and some questionnaires may not be completed in full due to reasons which are beyond the researcher’s control. The researcher will distribute questionnaires exceeding the minimum sample size in a bid to reduce the threat of this limitation. Respondents will be requested to complete the questionnaires in full and within a reasonable time, taking into consideration their business schedules.

1.9 Delimitation

The study was restricted to the Zimbabwean economy and its Tax legal structure on issues relating to tax offences. This was because the researcher had good appreciation of the Zimbabwean tax system and access to data and information. Tax administrative measures were restricted to those pursued by ZIMRA which is the only Revenue Authority in Zimbabwe.

The concept that the research focused on was that of tax offences and measures to address them. Zimbabwe’s success is dependent upon revenue collection but without first addressing the problem of tax offences, all the efforts by ZIMRA will be in vain. As such, this was viewed as a critical issue to determine the success of the country

The research covered the period from 2001 to 2015. The period was chosen because it provides enough information on measures that were implemented by ZIMRA since its inception in 2001.

1.10 Chapter Summary

This chapter provides a background to the study. The paper proceeds to Chapter 2, which presented literature survey, both theoretical and empirical. Chapter 3 gives the methodology that shall be adopted. All empirical result shall be tested and presented in Chapter 4. Policy recommendations and conclusions are presented in the last section, Chapter 5.

CHAPTER 2 LITERETURE REVIEW

2.1 Introduction

This chapter concentrated on theoretical aspects and empirical overview of tax systems of other countries and that of Zimbabwe. In line with that, the researcher looked at tax offences, their causes, and their economic effects. The measures that are implemented to reduce these tax offences are also explored in this chapter.

2.2 Theoretical Literature Review

2.2.1 Definition of Terms

2.2.1.1 Tax

There is no formal definition of tax under the Zimbabwean law. However, Business Dictionaries .com defines tax as a compulsory contribution to the state revenue, levied by government on workers income and business profits, or value added to the cost of some goods, services and transactions. According to Nicholas, T (2003), it is a contribution designed to reduce private expenditure in favor of public expenditure to enable the government to obtain funds in order to provide social and merit goods and services, redistribute income, clear market imperfections and stabilize the economy.

According to C. Kebera (2009), “tax should not be a return to government for service rendered to taxpayers i.e. an individual cannot ask for any special benefits from the government in return for the tax paid. Moreover, it should be a compulsory contribution imposed by the government on people or companies. Because of its compulsory nature, those who do not pay it should be punished and it is to be paid by those who come under its jurisdiction. Tax is a payment by taxpayers which is used to benefit all the citizens whereby the government uses the collected revenues to establish infrastructures such as hospitals, schools as well as other public utility services”.

These definitions are relevant to most tax system as they pierce directly to what they consider as tax. In Zimbabwe, the main taxes that are levied are Income Tax, which is tax levied on profits generated by businesses over specified periods; Value added Tax, which is paid on the value added to goods or services; Pay as You Earn, which is paid on remuneration of every employee; Capital Gains Tax, which is paid of the gain obtained from the disposal of shares and fixed properties and Presumptive Tax, which is usually paid by informal traders on profits they make in their businesses.

2.2.1.2 Tax Offences:

An offence is any act, conduct or omission which is prohibited by law and is punishable RPD Processes and Procedures (2007). A tax offence is any act, conduct or omission which defrauds the state of its tax revenue. According to RPD Processes and Procedures (2007), an offence is an illegal act punishable by law. It includes tax fraud, tax evasion, corruption, and failure to comply with any miscellaneous items of the lax laws of a nation. Barry (1996) considers tax fraud as situations in which deliberately false statements are submitted and fake documents are produced with the idea of paying lesser tax or not paying at all.

According to Gesellschaft fur Internationale Zusammenarbeit (GIZ) (2001), Tax evasion refers to illegal practices by taxpayers to escape from paying tax. Taxable income and profits which should be taxed and other taxable activities are concealed. The amount and/or the source of income are misrepresented and tax reducing factors such as deductions, exemptions or credits are deliberately overstated, Alm et al (2001). More so, tax evasion occurs in the informal economy. In this particular case, the business is not only evading tax payments but is also not registered as formal enterprise at all.

Tax avoidance, in contrast, is when a taxpayer pays less tax than what he should have paid through adjustments of other items which form part of allowable deductions, AFRODAD (2011). Under tax avoidance, individuals or firms exploit loopholes of the tax structure.. An example of tax avoidance is strategic tax planning where financial affairs are arranged in ways which minimize tax liabilities by e.g. using tax deductions and taking advantage of tax credits.

2.2.2 Conceptual Framework

Conceptual frameworks discussed below help to explain the perceived behavior of taxpayers towards tax. They are designed to ease the process of designing policies and strategies of reducing tax offences in various nations.

2.2.2.1 The Deterrence Model and Equities and Exchange Theory

According to O. Zivanai et al (2014), the Deterrence Model and the Equities and Exchange Theory view taxpayers as reasonable beings who are rational in their economic actions. Because of their rational behaviour, their chances of evading tax and committing other tax offences is centred on the gains and/or losses arising from the act and perceived inequities within the tax systems, Guevara (2008). If the likelihood of getting caught is high and the respective penalties are high, a utility maximising taxpayer will not evade tax, Allingham and Sandro (1972). In light of these assumptions, robust control mechanisms are necessary if the country is serious in increasing losses to taxpayers arising from committing tax offences.

2.2.2.2 The Slippery Slope Model

The Slippery slope framework assumes that the tax climate in a country is antagonistic, i.e. it varies from one extreme end to another, Kirchler (2007). In that environment, taxpayers and tax authorities operate as adversaries against each other, H. Nhamo et al (2014). The prevailing attitude is that of the police and robber. This results in antagonistic feelings between the taxpayer and the tax authority.

2.2.2.3 Political Legitimacy Theory

According to Tayler (2006) the political legitimacy theory assumes that taxpayers comply with tax laws if they trust their governments. Legitimacy is a belief or trust in the authorities, institutions, and social arrangements to be appropriate, proper, just and work for the common good, A. Merima (2013).

2.2.3 Main Tax Offences in Zimbabwe

Tax offences mentioned below are a piecemeal of the most common ones in Zimbabwe. Having appreciated their existence, the law has respective penalties and fines for the offences.

2.2.3.1 Income Tax, Presumptive Tax and PAYE offences:

The following are some of the offences that are under the jurisdiction of the Income tax Act:

a. Failure or neglecting to furnish, file or submit any return or document required by the Commissioner, Section 81(1) (a) of the Income Tax Act Chapter 23:06.
b. Furnishing false information on returns, Section 85(1) of the Income Tax Act Chapter 23:06
c. Failure to pay income tax and the withheld PAYE within the stipulated periods, paragraph 3 of the thirteenth schedule of the Income Tax Act Chapter 23:06.
d. Refusing to co-operate with a tax audit, Section 81(1)b) of the Income Tax Act Chapter 23:06
e. Failure to register with for PAYE as prescribed in paragraph 2 of the 13th schedule of the Income Tax Act Chapter 23:06.
f. Offering of bribes to officers in order to protect the offender’s tax fraud during audits

2.2.3.2 Value Added Tax offences according to the VAT Act:

a. Failure to register when the turnover is above $60 000.00, Section 62(2) of the Value Added Tax Act Chapter 23:12
b. Issuing tax invoices while the person is not registered for VAT, Section 62(1)(j) of the Value Added Tax Act Chapter 23:12
c. Production of false tax invoices in order to claim input tax or pay less on output tax, Section 63(1)(a) of the Value Added Tax Act Chapter 23:12
d. Tampering with fiscal devises thereby giving rise to false output tax, Section 63(1)(a) of the Value Added Tax Act Chapter 23:12
e. Smuggling Section 62(1) (b) of the Value Added Tax Act Chapter 23:12.
f. Failure to remit output tax to ZIMRA within the stipulated time.
g. Failure to render returns for output tax, Section 64(a) of the Value Added Tax Act Chapter 23:12

2.2.3.3 Capital Gains Tax offences in:

a. Undervaluation of shares and fixed properties.
b. Failure to pay capital gains tax within the stipulated period
c. Failure to change ownership of houses and shares

2.2.4 Causes of Tax Offences

According to the research conducted by GIZ (2011), there are various reasons for dishonest behaviors among taxpayers. In order to structure measures for fighting tax evasion, avoidance and other miscellaneous tax offences, it is important to establish a broad understanding of the different reasons underlying these problems. These reasons can be grouped in two categories. The first category comprises factors that negatively affect taxpayers’ compliance with tax legislation. These factors can be either contributing to a low willingness to pay taxes (low tax morale) or to high costs to comply with tax laws. The second category contains reasons for the low ability of tax administration and fiscal courts to enforce tax liabilities. These factors can be summarized below:

Figure 2.1: Factors that that contribute to most tax offences

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2.2.4.1 High compliance Costs

The costs incurred by taxpayers in paying taxes are far greater than the net sums that governments collect (B. Arthur et al, 2011).The costs involved in completing, filing and submitting tax returns as well as gathering information relating to tax issues, can be major reasons for non-compliance (World Bank, 2008). According to Everest Phillips (2008), businesses are now more worried about administrative burden than the actual tax burden itself. More so, the range of taxes in most countries including VAT, Income Tax, Capital Gains Tax, and Withholding Tax for Tenders is considered too wide especially VAT which involves more paperwork and more time is investment in administration of this tax head. In a study carried out by the World Bank in 2008 in certain specific countries, it was revealed that much productive time is lost in preparing tax returns. Figure 2.2 below shows the amount of time spent in preparing tax returns per annum for the selected countries

Figure 2.2: Time to prepare and pay tax in hours

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Source: The World Bank, World Development Indicator “ Time to prepare and pay tax in hours ” , 2008

The time to prepare tax returns varies across the world. From the study carried out in the selected countries, Brazil recorded the highest number of hours taken to complete tax returns followed by Vietnam. This might be due to the complicated nature of their tax laws and procedures.

Switzerland recorded the least number of hours. This could be the explained by the simplicity nature of its tax laws and procedures in this country.

From this background, it is clear that the time spent in preparing returns and paying taxes is too much especially for small firms which struggle to hire experts in the area of tax laws and regulations. As a result, most of them end up not registering and if they register they may fail to comply with tax laws because of the costs involved.

2.2.4.2 High Tax Rates

The rate of tax determines the level of revenue that governments can collect from business transactions. Laboratory experiments with varying tax rates found that increases in tax rates lead to higher tax evasion (Alm, Jackson and McKee, 1992). If a tax rate is prohibitively high, the chances of having more people who evade tax are high and this lowers the amount of tax to be collected. A typical example is that of presumptive tax for hair salons in Zimbabwe. A currently prevailing fixed presumptive tax of $1500.00 for all hair saloons is too high and very few saloons would register and if they do, they fail to pay this tax.

The impact high tax rates have taxpayers are explained by the Tax Laffer curve. The Tax Laffer curve suggests that, tax revenue increase when the rates of tax are increased but they increase at a deceasing rate until they reach a maximum point as depicted by the diagram below. Tax rates increases after the equilibrium point would cause people not to pay taxes either through legal means (avoidance) or through illegal means (evasion). The equilibrium point is the optimal point for revenue collections. If tax rates reach 100 percent (the far right of the curve), all people would choose to evade taxes because everything they earn would go to the government.

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Figure 2.3: Tax Laffer curve

Source: Piketty and Krugman, (2014)

On the endpoints, if for example, the tax rate is 0 percent, we get zero revenue. If the tax rate is 100 percent, we get zero revenue because no one will be willing to pay taxes. On the turning point, labeled equilibrium point, that’s where most people will be willing to meet their tax obligations.

2.2.4.3 Fairness of Tax Systems

According to GIZ (2010), the structure of the overall tax system has an impact on the behaviour of taxpayers. Taking a typical example of the Zimbabwean Tax System, where the tax rate on corporate profits is relatively low as compared to that of personal income, individual may perceive their personal tax burden as unfair and choose to declare only a part of their income.

2.2.4.4 Complexity of Tax Laws and Procedures

The complexity of laws is one character of all laws, tax laws included. Victor. T (1996) is of the view that tax laws are often complex, confusing, and arbitrary and these complexities are inevitable though detrimental to the society. The laws have been made complicated to close all loopholes which might be used by dishonest taxpayers to defraud fiscals’. A highly complex tax system increases the taxpayers’ burden and costs in a way which reduces incentive to comply with the laws. According to the Government Accountability Office (GAO), the goal of tax policy is not to eliminate compliance and efficiency costs. The goal of tax policy is to design a tax system which produces the desired revenue while balances the minimization of these costs with other objectives, such as equity, transparency, and ease administration procedures, B. Arthur (2011). Krause (2000) is of the view that, tax complexities undermine the ability of tax authorities to distinguish among intentional evasion, honest misinterpretation of the tax code, and legitimate tax avoidance. From these theoretical backgrounds, it is not wrong to conclude that in as much as complexities are necessary, non-compliance in tax code should be expected without regrets.

2.2.4.5 Limited Punitive Action to Tax Offenders

Fines and Penalties are not enough disciplinary tools for tax offenders. There are other effective tools that can effectively punish tax offenders such as prosecution and shaming of tax offenders. In as much as there are many tax offenders in Zimbabwe, there is still limited evidence of tax offenders who are prosecuted for their offences.

2.2.4.6 Weak Capacity to detect and Prosecute Tax Offenders

In most developing countries, the use of forensic accounting in investigating tax fraud is not common. Well-functioning investigation bodies are essential for the detection and prosecution of tax offenders, GIZ (2010). Furthermore, tax laws in most developing countries change rapidly, thus producing instability and low transparency of the tax code. As a result, complicated tax laws and ongoing changes of tax codes confuse both tax administrators and taxpayers thereby creating opportunities for tax avoidance (Mo, 2003).

2.2.4.7 Low Tax Morale

R. G. Cummings et al (2005) argues that differences in taxpayers’ behaviour across countries are determined by differences in tax administration and citizen attitudes toward governments. Results from laboratory experiments conducted in different countries demonstrate that differences in taxpayers’ attitude towards tax can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments, Michael McKee et al (2005). Social norms and morals have been cited as reasons for high compliance with rules (Elster, 1989; R. G. Cummings, 2005). According to F. Schneider (2006), countries which have citizens who trust in the legal system of their government and parliament have national pride and this positively affects tax morale. Therefore, when looking at ways of reducing tax offences, it is imperatively important to check the tax morale of taxpayers.

2.2.4.8 Existence of Virtual Income among Taxpayers

The economic conditions prevailing in most developing nations are so distressing that most firms end up selling most of their goods and services on credit. However, most of these sales fail to give the promised revenues due to bad rise in bad debts across most developing countries.

2.2.4.9 Technological Advancement

In as much as technology is applauded for improving the way businesses are done, it is also used to defraud states of revenues. In light of that, C. Kabera (2009) argues that technology facilitates e-commerce and most of the transactions on the internet are not easy to monitor. More so, electronic information can be hidden and this may encourage cheating.

2.2.4.1 0 High levels of corruption

The journal of Fiscal Reform in support of Liberalisation, published in June 2006, defines corruption as a situation where officials abuse their positions of public authority for private gain. According to the herald of the 8th of December 2010, ZIMRA dismissed 70 employees between October and December 2010, a sign of high level of corruption in Zimbabwe. AFRODAD (2011) argues that most of these cases are not brought to court but just appear in the press and the offenders go unpunished. Corruption reduces the willingness of taxpayers to pay taxes knowing that they can benefit more from paying bribes than taxes themselves.

2.2.5 Measures to Address Tax Offences

Now that we have highlighted the most common tax offences that are ravaging developmental prospects of most countries and possible causes of these tax offences, an analysis of measures to reduce these offences is highlighted below. Figure 2.4 summarizes the various ways of fighting tax offences in both developed and developing economies.

Figure 2.4: Measures to reduce tax offences

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2.2.5.1 The use of power to influence behaviour of tax payers

Power is the ability to influence behaviour of economic agents and economic players, Judith Mushipe, (2000). According to Turner (2005), most countries use two types of power, coercive power and legitimate power, in enforcing tax laws. Governments which use coercive power or harsh power adopt negative and positive reinforcement methods such as imposing sanctions to tax offenders or rewarding those taxpayers who are tax compliant. Becker (1968) suggests that while coercive power has both negative and positive reinforcement, only the former, which comes in the form of penalties and fines, is common while positive reinforcement in the form of rewards to honest taxpayers is unusual, though these two reinforcement strategies provoke tax compliance.

Field experiments which were carried out by Kleven et al. (2011) shows that audits and fines improves tax compliance. However, empirical studies on the impact of fines on tax compliance proved to the contrary, Fischer et al (1992). Laboratory experiments reported that positive reinforcement in the form of rewards increased tax compliance (Torgler et al (2006). Legitimate or soft power is the power which is derived from position, J. Mushipe (2000). Raven et al (1998) is of the view that legitimate power is dependent upon knowledge and skills of the authority, as well as the authority’s capacity to make taxpayers comply with its demands.

The use of power is common in Zimbabwe. Unlike other countries which focus on the positive reinforcement methods, it adopts both of them in order to get maximum benefits on each strategy. However, the waiver of penalties is unfortunately predictable and most economic players now know that once they apply for waiver of these penalties, they will succeed. Moreover, very few dishonest taxpayers have been successfully prosecuted by ZIMRA. As a result, the strategy ends up being a fantastic blueprint which lacks enforcement.

2.2.5.2 Internal and external Audits

Tax audit is one of the most effective control mechanisms in addressing the problem of tax evasion. The level of tax audit is determined by the number of taxpayers, the number of auditors and the intensiveness of the audit, N. BARBUTA-MISU (2011). It is believed that internal audit educe discipline in the organisation’s workforce they by reducing the temptation of tampering with system record. However, for audit to be effective both taxpayers and the auditors should be corrupt free and auditors should be knowledgeable of the area they audit, (Hyun, 2005). The greatest fear is that with the growing rate of corruption, will our audit be effective.

2.2.5.3 Tax Benefits

According to section 77 of the Value Added Tax Act Chapter 23:12 of the Zimbabwean Tax System, “tax benefit” includes—

a) Any reduction in the liability of any person to pay tax; or

b) Any increase in the entitlement of any registered operator to a refund of tax; or

c) Any reduction in the consideration payable by any person in respect of any supply of goods or services; or

d) Any other avoidance or postponement of liability for the payment of any tax, duty or levy imposed by Tax Acts or by any other law administered by the Commissioner of Taxes. A number of incentives for compliant taxpayers are in place to encourage them to be on the right side of the Zimbabwean tax laws, AFRODAD (2011). In addition to that, ZIMRA has created a large client office for most compliant clients. While it is not easy for most large companies to cheat because of audit requirements and of the Stock Exchange regulations for listed companies, these companies can avoid paying taxes through omitting certain transactions. More so, taxable income from manufacturing companies which exports 50% or more of its output is 20% and all exports (except chrome ore) are VAT zero rated. However, according to the research by AFRODAD (2011), the study found that revenue collection in Zimbabwe is poor, despite all its efforts in promoting honest tax behavior.

2.2.5.4 Tax Education

Most taxpayers, especially those in the informal sector, fail to comply with other miscellaneous requirements due to ignorance. N. Maseko (2014) argues that tax education is vital especially when properly structured to simplify the complexities involved in tax laws and procedures. According to the research, most tax consultants suggested that ZIMRA should conduct more tax workshops and seminars to educate taxpayers. He also advocated for establishment of Small Business Taxpayer Offices around the country to cater for the special needs of SMEs.

2.2.5.5 Asset Declaration and Whistle Blowing in reducing corruption

The third Schedule of the Income Tax act Chapter 23:06 give remarkable privileges to whistle blowers who blow the whistle to the advantage of the organisation. Vienna (2013) identified a number of areas that should be focused on in order to prevent corruption. Automation, human resource management, transparency, leadership and commitment, adequate regulatory framework, reform and modernization, audit and investigation, code of conduct, morale and organizational culture are among the major areas that should not be ignored when addressing the problem of corruption. Naming and Shaming of Tax Offenders can be celebrated because of their nature of tarnishing images of tax offenders.

2.2.5.6 Records keeping and control

ZIMRA has systems which timeously record all transactions as they occur. This is done through the SAP and ASYCUDA World, Wilson Matamande et al (2012). In the manual environment, it makes use of miscellaneous receipts and all records are kept in the registry section. Each time when clients register, submit returns, respond to letters of deregister, everything is filed in the registry section and all records are kept for a minimum of six years and the client is given duplicated of all his documents. This reduces the chances of clients who may be tempted to falsify dates of submission of returns or effective dates of registration. The method has been working well especially in a corrupt free environment.

2.3 Empirical Literature Review

In a research carried out by GIZ (2009) in their research titled addressing tax evasion and avoidance in developing nations, it was noted that studies on this area are still scarce in Africa giving rise to lack of real empirical estimates of revenue that is lost through unscrupulous activities of most taxpayers. They suggested that these researches should focus on the causes of the tax losses and the policy instruments that are most effective in encountering tax evasion and avoidance. This implies that empirical research should put an emphasis on the evaluation of policy reforms. They also find out that developing countries can achieve much in their efforts to address tax offences if they co-operate internationally and come up with uniform enforcement strategy. In addition to that, it was perceived that reforming tax policies and strengthening tax administrations in developing countries is crucial to establish a ‘level playing field’ in tax matters between developing countries’ administrations, globally active MNEs and large and well informed taxpayers. In this regard, specialized trainings in the field of cross-border profit shifting and tax fraud represent a promising strategy for future work.

Kabera Charles (2009) also conducted a research on the effectiveness of tax offences control mechanisms of the Rwandan tax system. In his research, upon identifying the causes, effects and solutions that are at the Rwanda Revenue Authority’s disposal, he concluded that there were more weaknesses in the mechanisms that the country was using to curtail the behavior of tax offenders. One of the weaknesses was that there was inconsistency in tax and customs laws over the same matter and this gives rise to different operational procedures. The following are the registration weaknesses as per his research:

a) Some taxpayers do not voluntarily register as required by the law. This means that they will have violated tax procedures which provide that any person who sets up a business or other activities that may be taxable is obliged to register with the Tax Administration within periods from the beginning of the business or activities or establishment of the company.

b) Some taxpayers are reluctant to provide true information about their business and address and it becomes difficult for RRA to trace them. This means that they will continue to commit different types of tax offences as the tax administration cannot trace them and enforce the on them.

c) There are taxpayers who import goods without being registered with the RRA and sell the goods they import directly from customs warehouses. Since these taxpayers are not registered, it means that they will continue evade domestic taxes because the tax administration cannot trace such a taxpayer since he is not registered. d) The RRA delays in responding to taxpayers ’ requests for de-registration. In such a situation where taxpayers request are not responded to promptly by the tax administration. The taxpayers will have long perception towards tax administration and they will be prompted to become non-compliant with their tax obligations. e) Criteria for entry and exit to large taxpayers from and to small and medium taxpayers ’ are neither clearly established nor consistently followed.

f) There is no adequate link with the public agency that provides trade licenses to enforce taxpayer registration. If there is a link between these agencies and the tax administration, all business operators can be brought in the tax net and the tax administration can enforce the law against those who have not voluntarily registered.

g) Some taxpayers do not notify the RRA of the change in their registration details ranging from the change of phone number, to ceasing of businesses. In such a situation, it will be difficult for tax auditors to trace tax offenders in that category and conduct investigations on their operations ” C. Kabera (2009).

These findings show that a lot of work still needs to be done to reduce losses arising from intentional and unintentional tax evasion. The researcher also realized that tax offenders are not being prosecuted for failure to pay penalties and that they will continue to commit tax offences because they do not feel the pain of violation of tax laws.

From the findings of N. Gemmell et al (2014), in most countries, the tax gap is usually overestimated leading to constant failures to meet revenue targets by governments. Therefore, policy reforms aimed at improving the rate of tax compliance may lead to reductions in the tax bases and thus generate less revenue than anticipated. Policymakers should therefore try to account for behavioural response when estimating how much revenue is likely to be raised from new measures introduced to combat tax evasion and avoidance. In light of this, it is it is plausible to invest more effort in estimating realistic ‘tax gaps’ so as to reduce wastage of resources through following taxes that do not necessarily exist. Without proper estimation of tax gaps, the results of measures aimed at reducing tax offences will always be negative. Zimbabwe rarely meet revenue targets and the question now is does it properly estimate the correct tax gap.

In another study which was carried out by Y. Helhel et al (2015), where 170 taxpayers in Sanaa, the capital of Yemen, were selected for the survey, it was revealed that the effectiveness of administrative measures to reduce tax offences is highly affected by high tax rates, poor tax morale, misappropriation of public funds, inability to pay taxes, unfriendly relationship between the state and its citizens, poor structure of tax systems and low levels of accountability and transparency. Effective tax policy and improved tax audits were found to be best answers for the tax situation in Yemen. These results

Sia Gioak Faa (2009) is of the view that understanding taxpayer behaviour on tax laws is vital especially for taxpayers who are on self-assessment. For that reason, S. G. Faa (2009) carried out a research in Malaysia to analyse factors that affect tax behaviour of taxpayers who are on self- assessment. The factors examined include perceived chances of detection, tax audit, sanctions, perceived moral intensity, perception of fairness, and peer influence. The findings showed that four factors, namely, perceived probability of detection, sanction perception, perceived moral intensity and peer influence were found to have significant relationships with tax compliance. On the other hand, perception of fairness and prior tax audit were found to have insignificant relationships with tax compliance. Prior tax audit was found to be significantly associated with the probability of detection. This means that, even though it has no direct correlation with compliance, it is an area which should not be ignored.

In a bid to reinforce the current knowledge on the effectiveness of the audit system in addressing tax offences, The Bank of Greece (2012) carried out a research to empirically test the effectiveness of audit system 13 regions in Greece. Findings from the research revealed that tax audits are effective in inducing compliance in Greece. However, they acknowledge that Bad economic conditions (low income and high unemployment) could be associated with lower tax compliance, increased tax offences and ultimately higher tax evasion. This is contrary to most researchers who study the behaviour of taxpayers who argues that high tax moral has major compliance effect than audits.

2.4 Conclusion

Chapter two walked through the theoretical picture and empirical studies on the area of tax offences, causes and strategies of addressing these offences. The idea was to provide background information and an overview of the field of study. The researcher shall proceed to chapter three where he shall narrate the steps taken to contact participants and methods that would be used to conduct the research.

CHAPTER 3 METHODOLOGY

3.1 Introduction

Jankowicz (1995) defines research methodology as an analysis of rationale methods used in a given research. As already cited in previous chapters, this research seeks to analyze the effectiveness of strategies and initiatives that are pursued by ZIMRA in addressing tax offences in Zimbabwe. As such, this section gives a narration of the methods and techniques that were adopted by the researcher in conducting his research. Defining the research design, population which is the subject of the study, articulating the sampling frame and describing how the respondents were selected and the basis of data analysis are primary issues of discussion in this section.

3.2 Research Philosophy

A Research philosophy is a belief on the way in which data about a phenomenon must be gathered, analysed and used, (Galliers, 1991). There are two major philosophies namely the positivist philosophy commonly known as the scientific philosophy and the anti-positivist philosophy popularly known as the interpretive philosophy. Positivism is a system of philosophy based on experience and empirical knowledge of natural phenomena, in which metaphysics and theology are regarded as inadequate and imperfect systems of knowledge, (Encarta dictionaries 2009). The positivist idea considers personal experience as basis of true knowledge and also emphasizes the importance of scientific verification. On the contrary, the anti-positivist philosophy maintains that the verification principle itself is philosophically unverifiable. Blaikie (2000) argues that any one of these two philosophies should be part of a series of choices considered by researchers in shaping their research design and the choice should connect back to the research problem.

The researcher adopted the positivism approach due to its relevancy to the study. The main features of this approach are along the lines of basic beliefs, preferred data collection methods and scientific analysis as preferred analytical tools. The approach used in this study included multiple methods to establish different views of phenomena while small samples are investigated in depth. The positivist philosophy was chosen because it produces qualitative data, rich in information. It was also appropriate because it concentrated on a small effective sample (expert tax consultancies and ZIMRA officers), focusing on meanings (tax offences), viewing the totality of the situation with the objective of understanding occurrences (the effectiveness of the control mechanisms pursued by ZIMRA in fighting tax offences). The major drawback of the chosen paradigm is that it was time consuming.

3.3 Research Design and justification of the research design

Burns and Grove (2003) refer to a research design as “a blueprint for conducting a study with maximum control over factors that may interfere with the validity of the findings”. Parahoo (1997) describes a research design as “a plan that describes how, when and where data are to be collected and analyzed while White (2000), argues that a research design covers aims of the research, research philosophy, final selection of appropriate methodology, data collection techniques, the chosen method of data analysis and interpretation and an elaboration on how this combination was blend into literature. Overall, the research design is the means for answering research questions as well as testing the research hypothesis.

Survey design was employed and best suited this research since it gathered various views from a variety of stakeholders regarding the effectiveness of strategies that are pursued by ZIMRA in reducing tax offences. A formal study was carried out so as to obtain answers to the research questions. Lancaster (2005) noted that survey research is the most commonly used data collection method and defined it as a data collection method in which questioning is the main method. This method entailed selecting a sample of respondents from a population and administering a questionnaire or an interview before analyzing and providing meaning to the collected data. The fact that qualitative was collected using this design made it possible to gather hybrid research findings from which educated judgments were based. From the survey, the researcher gained control over the research process which corresponded with the view of Sanders et al (2003).

In the survey design, exploratory and descriptive methods were the major methods that were used. The choice was based on the unique utility of each type. Exploratory research provided open information on the subject matter of the research. It will enable development of theories that may be tested later. Descriptive research design gives a logical description of the different groups under investigation according to specified criteria (Malhotra, 1999).

3.4 Sampling

A sample is a proportion of the population, a part of it and all its characteristics, (Polit et al, 2001). Sampling was necessary to make the research feasible and manageable especially in terms of time constraints and volume of information that was utilized. Below are the methods and techniques that were used by the researcher in obtaining the research data.

3.4.1 Sampling Techniques, Procedures and Methods

3.4.1.1 Random Sampling

Random sampling was used for the purpose of identifying the respondents within taxpayers and ZIMRA officers. Otta (1995) views random sampling as, an equal likelihood principle, where every individual in the population have an equal chance of entering the sample. Employee numbers were acquired for both managerial and non-managerial employees and were picked out randomly. Those picked became part of the sample. Non probability sampling techniques were employed because there was no need to generalize the entire population and also probability sampling could have been costly and prone to inaccuracy of the sample due to unavailability of other respondents.

3.4.1.2 Purposive Sampling

The researcher utilized purposive sampling method and selected taxpayers based on their sizes and types of contract accounts that they have with ZIMRA. ZIMRA officers were selected from all section at Mhlalhandlela Complex in Bulawayo. According to Cooper and Schindler (2003), purposive sampling is when respondents to a research are selected because it is expected that they are representative of the population of interest and / or meet the specific needs of the study. For primary data, respondents were sampled based on their areas of specialty for example, Income Tax and PAYE Assessment officers, Tax Auditors, VAT tax officers, Real Estate Agents and Tax Consultancies in general. Under purposive sampling, judgment sampling was utilized to select sample members that had the prerequisite knowledge about the under study.

3.4.1.3 Sampling Procedure

In order to select a representative sample, the researcher first obtained a sample frame; list of Revenue Officers, taxpayers and tax consultancies. Purposive sampling was used in selecting registered and non-registered business operators to allow the researcher to consciously decide who to include in the sample. Simple random sampling was used to select respondents, in the Self-Assessment and Assessed Taxpayers category and in the VAT-Registered Business Operators category. The entire process of sampling was done in a single step to ease assembling of the sample since every member was given equal opportunities of being selected, unbiased and representativeness of the population.

3.4.1.4 Sample size

The essence of sampling is not about reflecting the population completely but it is up to the researcher to determine size of the sample which fits in with the requirements of the study. The sample consisted of 110 questionnaires of which 67 were sent to tax consultancies while 43 were sent to ZIMRA officers and 20 verbal interviews were conducted with those who seemed to be busy to respond to questionnaires. Therefore, the total respondents targeted amounted to 110.

3.5 Data collection methods and Data sources

The researcher depended mainly on the use of questionnaires and interviews as a primary source of data. The researcher used a combination of primary and secondary sources of information to ensure that data is current and relevant to the study. Primary data was obtained by way of questionnaires and telephone and personal interviews. As an employee of Zimbabwe Revenue Authority, the researcher had access to secondary information through access to confidential information, internal newsletters and exposure to internal meetings. Secondary data was used in some cases because some of the information could not be collected through primary methods.

3.5.1 Primary Data and collection Methods

These are original research works that have no interpretation (Cooper and Schindler, 2003). Primary data is said to be important as it provides accurate and timely information for decision making (Kahn and Cannell, 1957). Primary data for this study was obtained from questionnaire and interview responses.

3.5.1.1 Questionnaire

This refers to a document containing questions designed to solicit information appropriate for analysis. The questionnaire was designed and administered through dropping them to respondents and pick them when they are fully completed. Upon retrieval of the information, the returned questionnaire was checked, separating those which are fully answered and those which were not unanswered. Those which were not fully answered were partly considered valid and therefore considered for analysis on only those sections answered. The fully answered were considered for data analysis. The questionnaires was self-administered and personally collected by the researcher so as to minimize problems of questionnaire being mishandled or misplaced

Sanders et al (2003) defined a questionnaire as a general term that includes all techniques of data collection in which questions are asked in a predetermined order. The questionnaire was in both standard and open ended questions thereby enabling the researcher to gather as much information as possible. Despite being economic, this method posed a drawback in that some questionnaires were not returned by respondents. This thus meant that some expected data in form of responses was never realized. Since the questionnaires were completed in the absence of the researcher, probing and clarifications were not possible. This was however catered for through the use of the interview.

3.5.1.2 In-depth Interviews

In order to obtain data related to the objectives of this research, selected tax consultancies, taxpayers and ZIMRA Staff were interviewed to grasp the practical approach to tax offence control process and procedures. In-depth interviews were a source of primary data. By using interviews, the researcher collected data directly from the source. They were chosen for this research because they allow the researcher to collect comprehensive data on the subject under study. Berg (2004) argues that in-depth interviews “enable the researcher to explore complex topics and allow for ideas to merge that have not been predetermined by the researcher. ” Thus in-depth interviews were selected for this study due to their ability to collect data that offers deeper insight into the area under study.

In conducting these interviews, the researcher made use of purposive sampling in to coming up with the respondents. In this method, participants are selected because they are likely going to generate useful data for the project.

As stated by Bayes (1983), interviews gave the researcher an opportunity to probe deep in and realized new clues and open new dimensions for problems that were under scrutiny. Since this data collection tool entailed face to face interaction with respondents, the researcher benefited from both verbal and non-verbal communication.

3.5.2 Secondary Data

Documents are a secondary source of information. Maxwell (2009:45) defines document search as a “method of collecting, analyzing and interpreting data from journals, newspapers, text books, periodicals, government gazettes, magazines, internet, statutes and academic articles. Document search was suitable for this study as it is cheap, thereby reducing the financial burden on the researcher and has readily available of information. The researcher exhausted all the means of secondary data including data from textbooks, ZIMRA Website, administrative procedure manuals, Ministry of Finance annual budgets, Monetary Policy manuals and the Taxes Act of Zimbabwe, internet documents relating to measures of reducing tax offences, academic journals and newspapers.

3.6 Data Reliability and Validation Checks

In order to validate the questionnaires the researcher carried out a pilot survey whereby a preliminary analysis was carried out at Mhlahlandlela Complex before the actual sending of questionnaires to the respondents in tax consultancy firms and other stakeholders of ZIMRA. This helped in establishing clarity, validity, and reliability of the research instrument employed. The other strategy that the researcher used was to identifying experts’ opinions and discussing with fellow researchers i.e. peer review.

3.7 Ethical Considerations

The researcher recognizes and respects ethical principles. In line with that, there is informed consent and voluntary participation in the research. The researcher also ensures confidentiality by not disclosing confidential information which was provided by respondents. The researcher promised privacy of the respondents and security of the collected data. Anonymity to respondents was highly recommended and respondents were not required to give their names except for pseudo names which were optional. Integrity in reporting findings is maintained. Such were the sentiments in all questionnaires and interview which were held.

3.8 Methods of Data Analysis and Interpretation

This study will make use of thematic data analysis. This method of data analysis is one that looks across all the collected data to identify the main themes that summarize all views that would have been collected in the study. This method of analysis was selected for this study because it does not impose themes on the research findings but rather allows for themes to emerge from the collected research findings thus becoming suitable for academic purposes.

3.8.1 Data Verification, Coding and Capturing

The raw data obtained from questionnaires have undergone preliminary preparation before analysis using statistical tools. The major data preparation techniques include data editing, data coding and data capturing (Aaker et al., 2007). The role of editing was to inspect and correct omissions, ambiguities and errors in responses from participants.

3.8.2 Use of Measures of Central Tendencies, charts and graphs

Measures of central tendency reflect the most probable or appropriate responses to a question. A measure of central tendency reduces a whole series of data to a single figure or an average in order to facilitate the researcher comparing variables, for example, the average income of population groups (Wild & Diggines, 2009). The three ways of measuring central tendency most used in business research are the arithmetic mean, the median and the mode (Miller et al, 2002).

The mean is the most familiar of all the measures of central tendency and corresponds with most people’s notion of what an average is. The calculation of the mean is the sum of all the values, divided by the number of values. The median is the middle value between the lowest and the highest value in the distribution. The mode represents the response with the highest frequency. It is the simplest measure in the calculation procedure but is the least important as it ignores responses with extreme frequencies. The calculation of the mode is the value that occurs most frequently in a distribution. Charts and graphs were used after the data has been refined.

3.9 Conclusion

This chapter summarised the way in which the research was conducted, starting with the research philosophy, research design for the project, sampling methods and techniques which were used, data reliability remarks and comments on ethical consideration. The data was presented on and interpreted on chapter four of this research.

CHAPTER 4 DATA ANALYSIS AND INTERPRETATION OF RESULTS

4.1 Introduction

Chapter Three outlined the methodology adopted in conducting the study, which focused mainly on the research design which was adopted in analyzing the effectiveness of current control mechanisms in reducing tax offences in Zimbabwe. This Chapter follows up by outlining the major findings of the research objectives as set forth in Chapter 1. An analysis of the findings as well as the interpretation of same also follows. The chapter presents the results of the questionnaire and interviews, the patterns of results and an analysis of the relationship between the results, research questions and objectives. It commences with the description of demographical information and a test of knowledge relating to tax offences and proceeds to other non-demographic responses.

4.2 Analysis of Questionnaire Response Rate Table 4.1: Statistics on Response Rate.

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A total of one hundred and ten (110) questionnaires were distributed and one hundred (100) were responded to and returned. This represents a 90.9% rate of response and return. Questionnaires were distributed to revenue officers, tax consultants and taxpayers in order to guarantee quality of information across the whole spectrum of those who interfere with the tax issues.

Of the sixty seven (67) questionnaires sent to taxpayers and tax consultants, only 67 were responded to, giving rise to a response rate of 89.55%.The researcher hoped that the response rate would be higher than realized but some questionnaires could not be returned because the researcher failed to get hold of the respondents whose offices were closed for the greater part of the day, especially those tax consultants who normally conduct their businesses out of their offices. While respondents were given a couple of days to complete the questionnaires, some questionnaires could not be collected because some revenue officers were transferred to Harare for Audit Projects. This ultimately had the effect of reducing the total number of questionnaires which collected data that were eligible for analysis. In this regard, only forty (40) out of forty three (43) copies of the questionnaire distributed were responded to and returned.

Figure 4.1 below shows an analysis of the response pattern in the sample stratum.

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Source: Primary Data

In percentage terms, a high rate of response was obtained from Bulawayo Revenue officers because the researcher personally made follow ups of the distributed questionnaires. Overall, the response rate was reasonable and therefore the responses there to can be reliably used to validate the research findings

4.2.1 Analysis of Demographic Data

4.2.1.1 Gender

Table 4.2: Gender Participation Rate Gender Participation

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Source: Primary Data

An analysis of gender of participants is significant especially at this period where participation of both males and females in economic decisions is supposed to equal. Table 2 together with the explanatory chart shows that of the one hundred copies of questionnaires that were returned, fifty two (52) were responded to by females respondents contained more females and only forty eight

(48) were responded to by males. The findings go a long way in supporting the idea that women participation in decision-making, economic and political matters in our country is on the increase and is now about to match national gender ratio statistics.

Figure 4.2: Gender Participation

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4.2.1.2 Age

It is a general assumption that as a person matures, he is expected to give mature and objective comments in his responses. In order to check the reliability and maturity of responses, an analysis of age of participants was done. In Zimbabwe, the economically active group is of the age range of 25 to 45 years. From the analysis of results obtained as depicted in Figure 3 below, the highest percentage of respondents was obtained from the age group of 31 to 40 years where the researcher got 52% of participants who completed and returned the copies of the questionnaire. This is a sign that the majority of respondents were adults. The age of 25 and 30years, is represented by 35% of respondents while ages of 50 years and above, 25years and below produced outlying figures of 2% and 3% respondents respectively. From this analysis, it can be concluded that the maturity of respondents is valid enough to justify the reliability of results from the research.

Figure 4.3: An analysis of Age of Respondents

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Source: Primary Data

4.2.1.3 Academic level

Table 4.3: Academic Qualification

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Source: Primary Data

The level of education in Zimbabwe has grown so immensely that a random selection of people in the street can give rise to more than 10% of people with University degrees. Better results can still be obtained if a survey is conducted in professional organisations such as ZIMRA. Findings of this research have it as a testimony that the level of education in Zimbabwe is on the increase. Of the 100 participants who responded to the questionnaire, 3% are holders of ‘A’ level qualification, 15% have diplomas, 58% have first degrees, 22 have Masters Degrees and 2% have other post graduate qualifications. By and large, it can be concluded that the majority of participants were educated enough to understand the issues under investigation. The results of these findings are summarised in the table and figure below:

Figure 4.4: Findings on Academic Qualifications of Respondents

Findings on Academic Qualifications of Respondents

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Source: Primary Data

The table and figure below shows the nature of respondents’ characteristics interims of their professional and occupational duties. Of the one hundred (100), respondents, 40% were revenue officers and 60% were tax consultants and taxpayers. This was so because the researcher used purposive sampling where respondents to a research are selected because it is expected that they are representative of the population of interest and / or meet the specific needs of the study

Figure 4.5: Occupation

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Source: Primary Data

4.2.1.5 Working Experience

Table: 4.5: Working Experience

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Working Experience 38 42 16 4

Source: Primary Data

Analysis of working experience of respondents is necessary because the comprehension of the concepts under study may depend highly on the length of the period of employment. This was also necessary to ascertain whether the respondents were aware of the organizational processes, the effects of tax offences that are being committed and the effectiveness of control mechanisms that are in place to reduce these offences.

However, there are differences in understanding the aspect of working experience in ZIMRA as some included their time of service in the former departments of Customs and Excise and Taxes. It is also highly possible that some were referring to their length of service in their current posts while some could have been referring to their length of service in terms of years that they have served since ZIMRA’s inception on 1st September 2001. Irrespective of each respondent‘s perception of this question, what was of essence to the study was the issue of experience in so far as it is perceived as the ultimate parameter on which the respondent‘s understanding of the questions posed in the questionnaire were hinged. The table and graph below summarise the length of service of the respondents:

Figure 4.6: An Analysis Working Experience of Respondent

Figure 4.6: An Analysis Working Experience of Respondent

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Source: Primary Data

4.2.2 Findings on knowledge of Tax offences

4.2.2.1 Respondents who understand the term Tax Offence

Table4.6: Respondents who understand the term Tax Offences % Number of people ,who understand the Term Tax Offences

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Source: Primary Data

All respondents who participated in answering the questionnaire were fully abreast with tax issues and tax offences. This was supported by a 100% representation.

4.2.2.2 Views of Respondents on the level of Tax offences in Zimbabwe

Table 4.7: Views of Respondents on Tax Offences

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Source: Primary Data

As awkward as it looks, but this is the reality on the ground. The modest level on the Likert scale is 5 out of 5; with 72 % of respondents suggesting that the level of tax offences in Zimbabwe has reached its peak. The data on the table above shows that respondents are positively skewed towards the view that tax offences are on the rise in Zimbabwe. The data in the above table is presented in graphical form in the figure below.

Figure 4.7: What Respondents Know about the level of Tax Offence in Zimbabwe

Figure 4.7: What Respondents Know about the level of Tax Offence in Zimbabwe

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Source: Primary Data

4.2.3 Views of Respondents on the causes of Tax offences in Zimbabwe

One cannot come up with solutions to problems without looking at the causes of the problems. Therefore, it is one of the objectives of this research to analyze the causes of Tax offences in Zimbabwe in order to work out effective solutions to these problems.

Table 4.8: Causes of tax Offences in Zimbabwe

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Source: Primary Data

High Compliance Costs

Compliance costs are those costs which are incurred by the taxpayer in his or her tax affairs. They include costs of completing and sending the returns to ZIMRA, costs of acquiring tax education and the time spent in handling hustles relating to tax issues. From the table above, 42% strongly agree, 48% agree, 9% disagree and 2% strongly disagree that high compliance costs are a cause of tax offences. On a normal distribution curve, the data is skewed towards those who strongly admit that high compliance costs are a talking point when we discuss issues of tax

offences, with only a few disagreeing to that fact. This tally with findings of the World Bank, (2008), which suggests that costs involved in completing, filing and submitting tax returns as well as gathering information relating to tax issues, can be major reasons for non-compliance. Therefore, it can be concluded that high compliance costs are inducing non-compliance behavior amongst taxpayers. This is graphically explained in the figure below.

Figure 4.8: High Compliance costs are a cause of most tax offences.

illustration not visible in this excerpt

Source: Primary Data

Weak Capacity to Detect and Prosecute Tax Offenders

Because of the rational nature of human beings, they always try to optimize their resources, legally or illegally with the later dominating much in our modern economies. For as long as there are no effective ways of detecting and prosecuting tax offenders, the country may never realize its revenue goals. From the table above, 58% strongly acknowledge while 32 % agree that Zimbabwe has a poor capacity to detect tax offenders and very few of them are prosecuted, with only 10% viewing it to the contrary. The figure below shows how respondents view ZIMRA’s capacity to detect and prosecute tax offenders.

Figure: 4.9 Weak Capacities to Detect and Prosecute Tax Offenders

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Source: Primary Data

This is supported by Mo (2003), who argues that complicated tax laws and ongoing changes of tax codes confuse both tax administrators and taxpayers thereby creating opportunities for tax avoidance. From this background, it can be concluded that Zimbabwe has a weak capacity to detect and prosecute tax offenders.

Existence of Virtual Financial Status among Taxpayers

The amount declared and the actual amount that can be realized from the sales and or takings can be different due to difficult circumstances that are burdening companies in Zimbabwe. This amounts to incomes just on paper with nothing coming out from the takings. 20% strongly agree, 44% agree, 32 % disagree and 4% strongly disagree that most firms have virtual financial status in their books of accounts. In light of this, it is clear that some taxpayers are willing to comply with tax statutes but they do not have financial resources to finance their tax affairs. Figure 9 below show the views of responses of respondents on the existence of virtual financial status among taxpayers.

Figure 4.10: Existence of Virtual Financial Status among Taxpayers

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Source: Primary Data

Though the data is normally distributed, the modal number (44%) of respondents acknowledges that there is virtual financial status in most firms. Therefore it can be concluded that it is one of the major causes of tax offences in Zimbabwe.

Perceived unfairness of the Tax System

The Zimbabwe tax law has a progressive tax system. This means that those who earn more are taxed more than those who earn less. According to one of the taxpayers interviewed, progressive tax system discourages hard workers as one knows that more earnings will amount to higher taxes. From the findings of the research, 28% strongly agree, 39% agree, 27% disagree and 6% strongly disagree with the view that the Zimbabwean tax system is unfair. The figure below shows these results graphically.

Figure 4.11: Perceived Unfairness of the Tax System

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Source: Primary Data

Although 33% disagree with the view that the Zimbabwean tax system is unfair, 67 % have a meeting of the minds on the agreeing side. This is also justified by the modal number of 39% of respondents who agree that the unfairness of the system is a cause of tax offenses in Zimbabwe. From this background, it can be concluded that the unfairness of the Zimbabwe’s tax system is one of the causes of tax offences.

Complexity of Tax Laws and Procedures

The complexity of the Zimbabwe’s tax legal structure is a thorn in the eye for both taxpayers and tax officials. One of the legal experts consulted argues that the statutes should be complicated enough to close all loopholes that can pave ways for logical manipulation of the system. From this view from legal experts, it is highly likely that the statutes can be successfully simplified. However, these are the views of respondents on the complexity of tax laws as a cause of tax offences: 19% strongly agree, 54 agree, 18 disagree and 9 strongly disagree that is a cause of tax offenses. The figure below shows an analysis of these results graphically.

Figure 4.12: Complexity of Tax Laws and Procedures

illustration not visible in this excerpt

Source: Primary Data

The modal view on this cause is that of agreeing, with 54% of respondents acknowledging that the complexity of the Zimbabwe’s tax system is one of the causes of tax offences. This is supported by Victor. T (1996) who says that tax laws are complex, confusing, and arbitrary are detrimental to the society. Therefore, it can be concluded that it is among the major causes of tax offences in Zimbabwe.

Low Tax Moral

The success of any system depends highly on the moral of the participants. Such is also the case in the tax system. If tax payers believe that their contributions to the government are misappropriated, they may lose confidence and their involvement would simply be a matter of being on the right side of the law but if there is a chance to evade tax they would. Findings from the research reveal that low tax moral is a cause of tax offences with 16% strongly agreeing, 47% agreeing, 30% disagreeing and 7% strongly disagreeing to that. These results are presented graphically below:

Figure 4.12: Low Tax Moral

illustration not visible in this excerpt

Source: Primary Data

The modal view is of most respondents is biased towards agreeing that low tax moral is a cause of tax offences. This is supported by R. G. Cummings et al (2005) who argue that differences in taxpayers’ behaviour across countries are determined by differences in tax administration and citizen attitudes toward governments and any negative attitude increase the level of tax offences. Therefore, it can be concluded that low tax moral is a cause of tax offences in Zimbabwe.

High Tax Rates

It seems like the assumptions of Tax Laffer Curve are not respected in Zimbabwe. Neither have they been tested. The tax rates are just increased without looking at the welfare of taxpayers. The researcher was not surprised when he received 100% of respondents who agree that Zimbabweans are heavily taxed. 46% strongly agree while 54% agree that high tax rates are a cause of tax offences in Zimbabwe. There is a strong cohesion between these findings and Laboratory experiments which were done by McKee (1992), where increases in tax rates were found to be the major reasons for tax evasion. The figure below is a graphical presentation of these results.

Figure 4.13: High Tax Rates

illustration not visible in this excerpt

Source: Primary Data

Technological Advancement

The technological environment is the fast growing environment in most businesses. Most firms are creating paperless offices. Although ZIMRA is computerizing, they are continuing to add more forms that are supposed to be submitted as hard copies. Registry offices are now using much productive space as they are always expanded. 25% strongly agree, 62% agree, 12% disagree and 1% strongly disagree that slow technological improvements are a cause of noncompliance in Zimbabwe. These results are presented graphically below.

Figure 4.14: Technological advancement

illustration not visible in this excerpt

Source: Primary Data

The modal numbers of respondents (62%) agree that slow technological growth is a cause of tax offences, a number satisfactory enough to validate the fact that it is a cause of tax offences in Zimbabwe.

Corrupt Tendencies among Tax officials and Taxpayers

They say corruption is like cancer, quick to spread but not easy to treat. From empirical reviews, corruption was considered a major reason for most tax offences. Results from the respondents reveal a balanced view towards this view, with 12% strongly agreeing, 43% agreeing, 33% disagreeing and 12% strongly disagree that corruption is one of the major causes of tax offences. This corresponds to the findings of AFRODAD (2011) who argues that corruption is one major cause of tax offences in developing countries most of corruption cases are not brought to court and appear in the press and many go unpunished. These results are graphically presented below.

Figure 4.15: Corrupt Tendencies among Tax officials and Taxpayers

illustration not visible in this excerpt

Source: Primary Data

Limited punitive action on Tax Offenders

We hear of huge tax debts and tax frauds in Zimbabwe. However, in very few of these cases have we seen tax offenders being put to book and most taxpayers know that. Very few of these cases yield revenue to the country. Findings on this reveal that 34% strongly agree, 56% agree, 8% disagree and 2% strongly disagree with the view that limited punitive action on tax offenders is one of the causes of tax offences. The figure below shows these results graphically.

Figure 4.16: Limited Punitive Action among Tax Offenders

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The modal view is that respondents agree that limited punitive action on tax offenders can promote the behavior of tax offenders. This is enough for the researcher to conclude that it is one of the causes.

4.2.4 Areas where Tax offences are common

Table 4.9: Areas where Tax Offences are Common

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Pay As You Earn (PAYE) 6 6 8 31 49 100 5

Source: Primary Data

Most tax offences have a modal class of 5/5. The modal rank for Income Tax is 4/5, VAT has 5/5, Presumptive Tax has 5/5, Withholding Tax on executive directors is 3/5, Withholding Tax on tenders 5/5, Capital gains tax 3/5 and PAYE 5/5. This means that, on average, the level of tax offences in most contract accounts is high.

4.2.5 Common Tax offences

Table 4.10: Common Tax Offences in Zimbabwe

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Source: Primary Data

The mode in this case is the rank with the highest frequency and this time we have a situation where all the offences are ranked 5/5. Non Payment of taxes is ranked 5/5, with 80% agreeing that non-payment of taxes is one of the common tax offences. Non registration of entities also has a stunning rank of 5/5 with 91% of respondents suggesting that there are more organizations that are not registered with ZIMRA. In addition to that, of those who are registered, 97% falsely declare their income. Smuggling and non-submission of returns have 67% and 40% respectively. The graph below shows a graphical presentation of these results.

Figure 4.17: Common Tax Offences in Zimbabwe

Figure 4.17: Common Tax Offences In Zimbabwe

illustration not visible in this excerpt

Source: Primary Data

It is one of the major objectives of this research to verify the major tax offences that are being committed in Zimbabwe. The table above shows results of the findings on a Likert Scale. The scale was designed in such a way that rank 1(Series 1) is least in the order of importance and 5 is absolute agreement with the idea. The table above shows that 75% of the respondents are in absolute agreement with the view that the above mentioned tax offences are the most common ones in Zimbabwe. 80% rank non-payment of taxes as a common offence, a figure large enough to validate the fact that it is a common offence in Zimbabwe. The data on response rate on nonpayment of taxes is skewed to the right, giving rise to a mode rank of 5.

4.2.6 Effectiveness of current measures and Strategies of Reducing Tax Offences Table 4.11: Effectiveness of Measures of Reducing Tax Offences

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Source: Primary Data

Simplification of tax laws

Zimbabwe has been trying to come up with a simplified version of tax laws and procedures since ZIMRA’s inception. However, the parliament is taking long to conclude on the matter. As for the procedures, most travellers and taxpayer can give testimonies that procedures have been simplified. From the findings of the research 52% of respondents rate the simplification of tax laws a 4/5 while 20% rate it 5/5, 13% rate it 3/5, 8% rate it 2/5, 7% rate it 1/5. These results are analysed graphically on the figure below

Figure 4.18: Simplification of tax laws

illustration not visible in this excerpt

Source: Primary Data

The modal rank of respondents was 4/5 with 52% respondents agreeing that the way taxes procedures are simplified is helping to reduce tax offences. However, when it comes to solutions to problems, 52% is a little insignificant and it shows that something should be done to improve the current procedures. The responses show that if the procedures are perpetually revised and simplified, they can be more effective than they are. Overall, simplification of tax laws and procedures are effective measures of reducing tax offences in Zimbabwe.

Increase audit frequencies

In a recent development, ZIMRA has been deploying much of its staff to the audit section. This is done solely to increase audit frequencies. Research findings reveal that 73% of respondents give a rank of 5/5 to audit frequencies as a strategy of reducing tax offences while 12% rate it 4/5, 11% rate it 3/5, 3% rate it 2/5, 1% rate it 1/5. This means that if this strategy is reinforced in a non-corrupt and competent staff, tax offences can be reduced at a minimum costs. This is supported by Hyun (2005) who believes that internal audit educe discipline in the organisation’s workforce thereby reducing the temptation of tampering with system record. These results are graphically presented below.

Figure 4.19: Increase audit frequencies

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Source: Primary Data

Taxpayer education

Client education is now part of the job description of every revenue officer in ZIMRA. They spread tax knowledge and any news of changes in tax statutes to clients. The research findings show that 2% of respondents rate this strategy with a 5/5 while 13% rate it 4/5, 38% rate it 3/5, 26% rate it 2/5, 21% rate it 1/5. These results are presented graphically below.

Figure 4.20: Taxpayer education

illustration not visible in this excerpt

Source: Primary Data

Although the modal class is 3/5, the results are skewed to the left. This means that most clients do not acknowledge that client education is an effective way of fighting tax offences. However, it is a tool that should be embraced for some can change their minds when some light is shed in the grey areas that they need clarification.

Penalties and fines

Penalties are now divided into civil penalties, penalties arising from audits and late payment penalties. Usually the rate of penalties is 100% of the principal tax and those for late submission of returns is USD30.00 per each extra day from the due date. 41% of respondents rate penalties and fines with a 5/5 score while 24% rate it 4/5, 17% rate it 3/5, 13% rate it 2/5, 5% rate it 1/5.The figure below gives analysis of these results graphically.

Figure 4.21: Penalties and fines

illustration not visible in this excerpt

Source: Primary Data

The modal score on penalties is 5/5 which is represented by 41% of the respondents. This means that penalties can be effective if levied properly. In an interview conducted informally with tax consultants, it was revealed that the facility of penalty waiver is diminishing the whole essence of penalising clients. Almost all clients request for penalty waiver and it is always granted. As for fines, they are not a common strategy in ZIMRA since very few taxpayers are prosecuted. From these findings, it can be concluded that penalties and fines are effective strategies of fighting tax offences.

Prosecution of serious tax offenders

The results from research findings show that 43% of respondents rate prosecution 5/5 while 32% rate it 4/5, 15% rate it 3/5, 7% rate it 2/5, 3% rate it 1/5. These results are graphically presented on the figure below

Figure 4.22: Prosecution of serious tax offenders

illustration not visible in this excerpt

Source: Primary Data

These results could have been different if serious tax offenders are prosecuted for offences that being committed. However, very few of them are prosecuted and other taxpayers know that. Data on the figure above is skewed to the right. Though the modal percentage response is 43%, a proportion that can be considered small, considering its reputation, a larger proportion rate it above 3/5. From this background, it can be concluded that prosecution of tax offenders is an effective way of fighting tax offences.

Whistle Blowing to reduce corruption

Blowing the whistle is one of the main strategic tools that ZIMRA is currently using to fight corruption. 11% of respondents rate it 1/5, 23% rate it 2/5, 35% rate it 3/5, 22% rate it 4/5 and 9% rate it 5/5. These results are presented graphically below.

Figure 4.23: Whistle blowing to reduce corruption

illustration not visible in this excerpt

Source: Primary Data

Results from the study reveal that responses are normally distributed, a sign that the strategy is failing to gain considerable respect from the respondents. The modal class is 3/5 with a proportion of 35% supporting it. From this background, it can be concluded that whistle blowing is a measure that can reduce tax offences but it is not that effective.

Naming and Shaming of Tax Offenders

In a country where tax laws are respected, those who fail to comply are published. Once one knows that his or her reputation will be ruined by being published, he will be forced to comply. Findings from the research reveal that 40% rate this strategy 5/5 while 21% rate it 4/5, 19% rate it 3/5, 14% rate it 2/5, 1/5 rate it 6%. These results are presented graphically below:

Figure 4.24: Naming and Shaming of Tax Offenders

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Source: Primary Data

The results on the graph show that this strategy is of late gaining respect in Zimbabwe. Therefore, it can be concluded that naming and shaming of tax offenders is are effective measures of reducing tax offences in Zimbabwe.

4.3 Analysis of Interview Responses

A total of twenty (20) interviews were conducted with 12 being taxpayers and tax consultants and 8 revenue officers. All the questions were responded to satisfactorily. This represents a 100% response rate. The following are the interview questions asked and their responses:

Do you understand the meaning of the term tax offences?

This question was asked to verify if the respondent could fully comprehend the contents of the interview. Fortunately all respondents who participated in the interview know what tax offences are. This made is easier for the researcher as he mingled with people who speak the same language with him.

Are you aware of the existence of tax offences in Zimbabwe? If yes, can you specify some of them?

This question was asked as part of the research questions of the study. One cannot improve solutions to problems without understanding the dynamic nature of the problem. All the respondents acknowledge that tax offences do exist in Zimbabwe. According to respondents, the most common tax offences are:

a. False declaration of income
b. Late submission of returns
c. Non-submission of returns
d. Smuggling of goods
e. Claiming refunds when the client actually has a payable
f. Forming virtual companies, register for VAT and claim refunds
g. Fraudulent manipulation of purchases invoices
h. Fraudulently creating purposive tax invoices

The number of these tax offences shows that the strategies to reduce them, especially those relating to fraud, have to be effective.

Do you think that ZIMRA’s measures aimed at reducing tax offences are effective?

The major objective of this research was to analyze the effectiveness of strategies aimed at reducing tax offences in Zimbabwe. Broad as it might seem, most respondents acknowledge that some measures are effective while other are not. Chief among the measures that were considered effective by respondents is the increase of audit frequencies, naming and shaming of tax offenders, prosecuting as well as penalizing tax offenders. Moreover, most respondents were of the view that penalties should be justifiably levied and once they are levied they should not be waived. The facility of penalty waiver was a talking issue with most officers suggesting that penalties are just levied for them to be waived and not to punish tax offenders.

What do you think ZIMRA should do at the moment to improve the current tax offences control mechanisms?

Effective measures might exit but the fact that none of the measures is completely effective means that something can be done to improve the current status. Even those that are considered ineffective can be improved and become effective. Increasing audit frequencies, removing the facility of penalty waiver and adding more officers to the audit section are some of the ways of improving control mechanisms in ZIMRA.

Some say corruption is like cancer and it has no cure but an elimination therapy can do the job. Do you agree with that? Do you have anything in mind that can help to eliminate corruption in Zimbabwe?

This question was asked because we cannot talk of tax offences without mentioning the issue of corruption as all audit, prosecution penalties e.t c can only be successful in a corrupt free environment. All respondents subscribe to the view that corruption is not easy to eliminate and the only way to eliminate it is through removing those who are corrupt from their posts. Some suggested that asset declaration should be done by all staff in ZIMRA, including the management. More so, assets which are not declared should be seized and forfeited to the state. Some also suggested that whistle

How effective is adoption of the current technology in reducing tax offences?

This question was asked because technological advancement is one of measures of reducing tax offences which is gaining popularity. This has seen such accounting packages as the ASYCUDA and SAP being adopted in a bid to improve efficiency as well as reduce tax offences. According to respondents, technological improvement is an effective measure of reducing tax offences if it is embraced with people who are able to update it in a way which does not disrupt the flow of business activities.

4.4. Conclusion

In a nutshell, while it is admitted that ZIMRA has measures and strategies to reduce tax offences, results from the findings reveal that not all of them are effective. This means that some measures have to be improved and more strategies should be devised if the country is to realize its revenue goals. This conclusive idea came about after the data was presented and analyzed in this chapter. Tables, graphs and charts were used in the analysis of results.

CHAPTER 5 CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This chapter is devoted to providing proposed recommendations that can be implemented if the country is to reduce or eliminate tax offences. It highlights the implications of the research findings which are given in the form of a summary, conclusions and recommendations. The recommendations are hoped to be of benefit to ZIMRA as well as tax payers with regards to the maximisation of benefits derived from strengthened control system. The chapter also gives findings based, on areas which need agent attention and how this can be done.

5.2 Summary of findings

In all its stages of development, the research was guided by overall objectives of the research and research questions. The study was undertaken to determine the effectiveness of current tax offences control mechanisms in reducing tax offences in Zimbabwe. It was largely prompted by the increase in popularity of these initiatives across the world and their widespread application in underdeveloped countries.

Research findings reveal that some of the measures are effective though they need to be improved; other strategies are not fully taken advantage of while others are a waste of valuable resources and time. This is in line with the empirical evidence presented in the literature review where most researchers acknowledge that most strategies that are pursued by counties in reducing tax offences can gain more respect if they are improved. Prosecution of tax offenders, increasing audit frequencies, publication of tax offenders are chief among the measures which were considered effective in this research. However, corruption and limited capacity to audit reduce the effectiveness of these strategies. In this regard, the Alternative hypothesis (H1), which says that there are weaknesses in the strategies that ZIMRA is pursuing, holds. Therefore the research showed that control mechanisms are still characterized by inefficiencies, high costs on the part of clients, and most of them are ineffective.

5.3 Proposals for additions to the Legislative mechanisms

5.3.1 Unannounced forensic audits

The Zimbabwe’s law should be amended to give allowance for unannounced visits to taxpayer premises to be conducted. For example, Botswana has recently introduced unannounced field visits - This has made a noticeable impact not only in the recovery of underpaid taxes, but also in the attitudes of evaders towards the tax administration. Announced visits are impaired in that fraudulent taxpayers do their homework before the auditors come.

5.3.2 Mystery shopping

This is another form of surprise visits. It is commonly used by market researchers. During market research, a private organisation acts as a customer at their competitor’s shop and gather information on prices and practices. This is an alternative to the use of ‘fake customers’ to test the quality of service provided by their staff. “Mystery shopping,’’ is relatively a new measure adopted by only a few tax administrations to control violation of tax law. According to C. Kabera (2009), Argentina has amended its statutes to allow for inspectors to make false purchases in shops and penalise the firm if the mandatory invoice is not issued upon the sale.

4.3.3 Prosecution, imprisonment and publication of tax offenders

The law should also be amended to remove the optional facility of fine and be restricted to prosecution in cases of intentional tax fraud. The threat of long imprisonment and publication of tax offenders may create some amount of fear and induce offenders to pay their taxes. This should be done over and above penalties. Moreover, the jail term should also be lengthened to show taxpayers that the country is serious in eliminating tax offences. They should not be just laws which lack empirical tests. However, prosecution of tax offenders depend highly on the effectiveness of the judicial system and some judges no not see violation of tax laws as serious crimes. Therefore, judges should also be educated to treat tax issues seriously.

In addition to prosecution, publicity of tax offenders should be done to all those who are prosecuted and convicted. Publicity is not only used to heighten the perception that the likelihood of detection is high but also encourage compliance with tax obligations. It also helps to improve the credibility of tax administration by showing taxpayers that it can and will actively pursue those who choose to violate the law. Even company boards will realize that publicity, namely ‘naming and shaming’ attacks on alleged tax avoiders will damage their reputations in the eyes of important stakeholders, which can lead to sharp short-term share price falls and the unwelcome attention of tax authority. This strategy should not only be limited to those prosecuted only but should extend to publicizing the tax paid by certain selected companies. This will reduce tax evasion and favoritism by tax officials, C. Kabera (2009).

5.4 Recommendations on Administrative Measures.

5.4.1 Expanding the E-Services.

This can be done through allowing for e-registration, e-payment of taxes and online chats where taxpayers ask questions and get instant responses from revenue specialist. This is expected to widen tax knowledge on taxpayers. It is believed that there will be an increase in the number of taxpayers and tax advisers taking advantage of the ease and convenience these services provided.

5.4.2 Enhancing Taxpayer Registration and De-registration

The starting point in controlling tax offences is to start by having a track record of all taxpayers in the country. This should be done by accurately deregistering those who are out of business to clean up the burden of administering non-performing taxpayers and initiate registration campaigns. Taxpayer recruitment can be enhanced by advertising on radios, newspapers and televisions. This can also be done through direct co-operations between ZIMRA and those who issue trading licenses i.e. City councils and the Registrar of companies. Company registration officers should make the taxpayer complete the registration form and submit all the forms to ZIMRA on behalf of clients. More so, there should be a track record of those who import motor vehicles such that those who import more than once per year should be treated as commercial importers.

5.4.3 Giving Special Treatment to Informal Traders the Same Way Large Taxpayers are treated.

Of late, more attention is given to large firms than small ones yet Zimbabwe is turning into an informal economic zone. Evidence from researches reveals that more tax offences are committed by small firms yet they are overlooked by tax officials. From this context, a specific program should be implemented to help those new business owners to get abreast with tax issues. Pilot programs should be conducted where those new to business are given personal phone-calls from a tax officer to check if the business operator has questions about his tax obligations.

5.4.4 Improved accessibility of information to taxpayers.

This can be done through providing simplified versions of statutes and/or explanatory notes for complicated sections of the law. This can also be done through television programs that educate taxpayers on the danger of avoiding and evading tax.

5.4.5 Fighting Corruption

Improved staff welfare, intrinsic motivational strategies, training, and merit based promotions are some of the silent forks to corruption. Employees should be given complete units of work with minimum supervision and performance appraisals should be done basing on outcomes of each completed work. This should be done over and above the current measures in place. Without paying attention on this area, all efforts to eliminate tax offences will be in vain.

5.5 Area for further Investigation

Findings of this research reveal that whistle blowing and taxpayer education are viewed as ineffective relative to other strategies such as increase in audit frequencies, prosecution, publishing and shaming of tax offenders. Much of primary data was used and the research was more qualitative. To test whether the results are consistent, further studies should be carried out using more quantitative approaches such as regression analysis.

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APPENDICES

Appendix A: Research Questionnaire

My name is Liberty Chikarapo, A revenue Trainee in ZIMRA. The survey is undertaken as a partial fulfilment of the requirements of the ZIMRA Training Program. I am undertaking a study which seeks to verify: The effectiveness of measures and strategies pursued by ZIMRA to reduce tax offences in Zimbabwe. I know that this questionnaire might take part of your productive time but I kindly beg for your assistance. The information gathered is kept confidential and for academic purpose only. Your Co-operation will be highly appreciated.

Questionnaire Guideline:

For all responses please tick in the appropriate box unless otherwise specified to the contrary.

SECTION A: Respondent’s Personal Details

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SECTION B: Research Data

A. Testing of knowledge on core concepts in the questionnaire

1. Do you understand the meaning of the term tax offences?

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2. On a scale of 1-5 (with 5 being strongest), how do you rate the existence of tax offences in Zimbabwe?

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3. On a scale of 1-5 (with 5 being strongest) what is your overall rate of the effectiveness of ZIMRA’s measures aimed at reducing tax

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B. Causes of Tax Offences

4. The following are the main causes of tax offences. Do you agree? Please state by inserting the appropriate rate showing your opinion on the measures below:

High compliance costs

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D. Common Tax Offences

6. Which type of tax offence is more common in Zimbabwe? Rank

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E. Measures and Strategies of Reducing Tax Offences

7. The following are some of the measures and strategies that are pursued by ZIMRA in reducing tax offences in Zimbabwe. Please show the extent to which you agree with the following statements by ticking in the appropriate box.

a. Simplification of tax laws

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b. Increase audit frequencies

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i. Specify other measures that can help to reduce Tax offences

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F. Ways of improving the effectiveness of the current control system

8. The following are ways of improving tax offences control mechanisms. On a scale of 1- 10 (with 10 being strongest), how do you rate the following ways of improving ZIMRA’s control mechanisms.

a. Removing the facility of penalty waiver

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b. Improve its seriousness in prosecuting tax offenders

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c. Adding more Revenue officers to the Audit Section

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d. Other (Specify)

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Thank you for your time

[ END OF QUESTIONNAIRE ]

Appendix B: Interview Guide

1. Do you understand the meaning of the term tax offences?

2. Are you aware of the existence of tax offences in Zimbabwe? If yes, can you specify some of them?

3. Do you think that ZIMRA’s measures aimed at reducing tax offences are effective?

4. Can you specify some of the methods that you think can help to reduce tax offences?

5. Some say corruption is like cancer and it has no cure but an elimination therapy can do the job. Do you agree with that? Do you have anything in mind that can help to eliminate corruption in Zimbabwe?

6. How effective is adoption of the current technology in reducing tax offences?

Thank you for your time

Details

Seiten
88
Jahr
2015
ISBN (Buch)
9783668312814
Dateigröße
1.6 MB
Sprache
Englisch
Katalognummer
v341271
Note
2
Schlagworte
Zimbabwe tax offences tax payers tax ZIMRA

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Titel: Tax Offences in Zimbabwe. A Critical Analysis of the Effectiveness of Strategies and Initiatives that are being pursued by ZIMRA