Must Govt Always Tax to Raise Revenue?

By Tinotenda Bhunu

HARARE – WHEN I was in Upper Six, one lesson from my Economics teacher stuck with me more than most. “Government raises revenue through Taxation, T,” he told us. At that age it sounded almost too obvious to question. Government needs money to build roads, pay civil servants, run hospitals and schools, so citizens and businesses pay taxes. That was the lesson, full stop.

Then he walked us through one of the most famous equations in macroeconomics:

Y = C + I + G + (X − M)

Consumption. Investment. Government expenditure. Net exports. Back then it was just another formula to memorise and reproduce in an exam. It took years, and a lot more reading, before I started to appreciate how much was hiding behind those letters.

The equation is a national-income accounting identity. It shows how expenditure on final goods and services gets accounted for in an economy, nothing more. It doesn't tell you whether government spending is good or wasteful, and it certainly doesn't tell you how government got hold of the resources it's spending. Still, the Keynesian tradition leaned heavily on aggregate demand and the role government could play in propping up economic activity, especially when private demand was soft.

Then a friend introduced me to Austrian economics, and that shifted how I looked at all of this. The Austrian tradition pushed me to think harder about individual choice, prices, entrepreneurship, capital, voluntary exchange, and the knowledge problem. It made me ask a question I probably should have asked back in high school: where does government revenue actually come from?

The easy answer is taxation. The better question is whether taxation should always be the default answer whenever government needs more money.

Why this isn't just theory anymore

In Zimbabwe, this question has stopped being academic. In 2026, the Zimbabwe Revenue Authority introduced a presumptive rental income tax regime for certain rental properties. Under ZIMRA's Public Notice 08 of 2026, proprietors who weren't registered for income tax before 31 December 2025 and who rent out property for commercial, trade, or professional purposes are now subject to presumptive rental income tax from 1 January 2026: 15 percent of gross rental income, treated as a final tax for those the regime covers.


And the policy hasn't stayed on paper. ZIMRA has reportedly been requesting information on property owners and tenants at Borrowdale Brooke (names, contact details, lease start dates) as part of an effort to identify who owes rental-income tax. This is where an economic discussion suddenly gets very practical, very fast.


Because when people talk about "taxing landlords," it's tempting to assume the tax simply comes out of the landlord's pocket. Economics tells us to slow down and think again.

Say I own a property and rent it to a business for US$2,000 a month. At 15 percent of gross rent, that's a US$300 tax bill. The landlord now has a few options: absorb the US$300, cut spending elsewhere, accept a lower return on the investment, or try to raise the rent. If rent goes up, the burden shifts, at least partly, onto the tenant. And if that tenant is a business, it might try to pass the extra cost on to its own customers through higher prices.

So the real question isn't "how much will ZIMRA collect?" It's "who actually ends up paying?" That's tax incidence: the person legally responsible for remitting a tax isn't necessarily the one who bears its economic weight. It's a distinction that matters, and it's exactly why the word "tax" should never be where the economic conversation ends.

We still need to ask what the tax does to incentives. What happens to the supply of rental properties? To investment in construction? To maintenance? To rental prices? To formal lease agreements? To the people who might otherwise have put their savings into building another property?

These questions matter even more here because ZIMRA's new regime targets gross rent specifically. There's a real economic difference between taxing profit and taxing gross revenue. A landlord collecting US$2,000 in rent doesn't necessarily have US$2,000 in profit. Mortgage costs, repairs, insurance, security, rates, maintenance, and vacancies all eat into that. Taxing gross rent treats a property's revenue very differently from how a conventional income tax would. That doesn't automatically make it wrong, government does need revenue, but it does mean we should ask whether the design creates consequences nobody intended.


When the tenant becomes part of the tax system

The Borrowdale Brooke case gets even more interesting because ZIMRA's enforcement doesn't stop at the landlord. Under the Public Notice, if a registrable proprietor or agent fails to remit the tax, the Commissioner can appoint the tenant as directly liable for paying it, deducting it from future rent. Tenants who comply are protected from eviction or rent hikes for three months, but only on that specific basis.

Sit with that for a second. The tenant is no longer just someone paying rent to a landlord; they can become part of the government's collection machinery. Which raises a genuinely interesting question: where does the line between taxpayer, tax collector, and private contracting party actually sit?

From government's side, the logic makes sense. If landlords don't comply, go after the rental stream. If the landlord's abroad, find another mechanism. If there's an agent involved, put the obligation on them. It's a sound revenue-collection strategy. But from an economic standpoint, we still have to ask what happens next.

Picture someone who's spent years saving up to build a rental property. That's not just a decision about bricks and mortar, it's an investment decision. They're weighing the expected return on property against other options, factoring in construction costs, financing, maintenance, vacancy risk, regulation, and tax. If the expected return gets less attractive, they might simply decide not to build. That's where taxation runs straight into capital formation.

And capital formation matters, because Zimbabwe doesn't just need government revenue. It needs more productive capital. More houses. More factories. More shops, warehouses, offices, farms, businesses, infrastructure, investment. So when we design a tax, we shouldn't just look at what it raises today. We should ask what it might discourage tomorrow.

Two schools, not a football match

This is where my own path, from Keynesian thinking to Austrian economics, feels relevant. I don't think the takeaway is that Keynes was wrong and the Austrians are automatically right. Economics isn't a football match where one side has to win and the other has to disappear. Different schools just force you to look at different parts of the economy.

Keynesians remind us that economies can go through stretches of weak demand and unemployment, and that government policy can move aggregate spending. The Austrians remind us that the economy isn't a machine with one central dashboard; it's millions of people making decisions based on information no government can fully possess. A landlord knows the state of his property. A tenant knows what he can afford. A developer knows what construction costs. A bank knows its own lending limits. A builder knows what labour and materials cost. An entrepreneur knows the risks of a particular bet. That information is scattered across society, and prices are what coordinate it. Taxes change those prices, and the incentives that come with them. Which is exactly why a tax can have consequences that never show up in a government's revenue projection.

Say Treasury estimates a rental tax will raise US$100 million. That's the number everyone sees. But what if it causes some investors to delay construction? What if rents climb? What if landlords start moving properties into informal arrangements? What if fewer people invest in rental housing at all? What if businesses facing higher rents just raise their prices? Those costs are real, they're just invisible.

This is where economics gets more interesting than accounting. The national accounting identity, Y = C + I + G + (X − M), doesn't tell you what happens to I when taxation changes the expected return on investment. It records investment; it doesn't explain what's driving it. It records government spending; it doesn't tell you whether that spending created more value than the resources would have created elsewhere. It records consumption; it doesn't explain why consumers changed how they behave. An accounting identity should never be mistaken for an economic ideology.

Back to Upper Six

Which brings me back to my teacher's original line: government raises revenue through taxation. Yes, it does. But government can also earn from state-owned assets, dividends, user fees, royalties, commercial activity, asset sales, and more. More importantly, government revenue ultimately depends on having an economy capable of producing taxable income and wealth in the first place.


Before there's rental income to tax, someone has to build or buy the property. Before there's corporate income to tax, someone has to start the business. Before there's consumption to tax, someone has to earn a living. Before there's income to tax, there has to be economic activity. Full stop.


So the question I keep coming back to isn't whether government should tax, of course it should. It's how much taxation an economy can absorb before that taxation starts eating into the very productive activity future tax revenue depends on. That's a much harder question, and it's the one policymakers should be asking about property taxes right now.


Should landlords be taxed? Sure, where the law provides for it and where it's justified. But should every possible rental tax be welcomed just because government needs the money? No. We need to look at the tax base, the rate, who really bears the burden, compliance costs, the administrative load, and the behavioural fallout. Are we taxing income or gross turnover? Are we encouraging construction or discouraging it? Are we making housing more expensive? Does the tax push transactions toward formality, or underground? And maybe most importantly: has government actually exhausted the ways it could spend more efficiently before reaching for a new source of revenue?


The Borrowdale Brooke case is therefore bigger than Borrowdale Brooke. It's a preview of where Zimbabwe's tax policy is heading. The state increasingly has the technological, legal, and administrative reach to catch economic transactions that used to slip past it, and that can improve compliance and widen the tax base. But a wider net isn't automatically the same as a stronger economy. There's a real difference between collecting more tax and creating more wealth. A government can get very good at squeezing revenue out of a shrinking economy. That's not success, that's just extraction with good aim.


The real goal should be an economy with more businesses to tax, more people earning wages, more houses going up, more investment happening, more entrepreneurs willing to take a risk.


Maybe that's the part I missed back in Upper Six. Taxation isn't where the economic story begins, it comes much later. Production comes first. Then income. Then saving and investment. Then economic activity. And only after all of that, taxation.


So the next time government asks for another dollar, maybe the question shouldn't just be "how much can we collect?" It should also be: what would that dollar have become if it had stayed in the hands of the person who earned it?


Because government revenue doesn't appear out of thin air. Before government can tax the economy, the economy has to exist first.

Tinotenda Bhunu is an economist by profession. LinkedIn: https://www.linkedin.com/in/tinotenda-bhunu-114645208?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=android_app