Marvelous Tapera 
THE Minister of Finance and Economic Development has, through his 2023 budget speech, announced a drive to rein in the informal sector, which has caused havoc to domestic revenue mobilisation.
This drive comes as a means to fulfil the formalisation of the informal sector, something that has for a while been of huge concern to the government and the formal sector.
The latter has been lamenting for long that the absence of participation of the informal sector is straining as the government continues to sequence the formal sector for tax revenues to meet its budget requirements. The grievances of the formal sector arise from the fact that most informal traders are not registered taxpayers and continue to make profits without being taxed yet they also enjoy public services. Some of these businesses are formal but do not pay taxes, which sounds unfair, doesn’t it?
The Finance minister stressed that maintenance of an accurate taxpayer register to facilitate payment of tax, risk and compliance management is a critical element of tax administration. He further stated that tax administration continues to experience challenges with companies that deliberately opt not to register for tax or taxpayers that do not update their details, rendering the tax register inaccurate.
The legal framework for the enforcement of compulsory registration of informal traders that has been proposed will be in reference to turnover in the prior quarter before registration; number of employees the trader has; the value of assets deployed by the trader in each of the four quarters. To implement this, the commissioner will issue a notice indicating the number of employees; assets deployed, and turnover earned by an informal trader, triggering registration or qualifying the trader for registration. A registrable taxpayer categorically excludes a presumptive taxpayer.
The gist of this article falls on the aspect of compulsory registration for income tax purposes of informal traders (registrable taxpayers). What this implies is within 30 days of the notice being published, the registrable taxpayer is required to apply for registration to Zimra, failure of which shall attract penalties. Consequently, a trader who commences operations after the notification by the Commissioner or is not registrable at the time of notification and thereafter commences trade and meets the requirements of the notification is enjoined at law to register within 30 days after such qualification in terms of the notice.
As already alluded to, penalties will arise if a trader fails to act accordingly with some of the penalties including a civil penalty with a combination of fixed penalty of US$30 or its equivalent ZWL$, civil penalty with a cumulative penalty over a period not exceeding 90 days of US$30 or its equivalent in ZWL$ for each day the defaulter remains in default of payment of the penalty. This penalty is accumulated on a daily basis, and it’s up to businesses to familiarise with tax compliance.
It is a commendable and yet not so friendly proposition which will encourage tax-compliance since penalties are daily. If the trader is no longer qualified to be a registrable taxpayer whilst having accrued penalties previously, the penalties remain due and payable, notwithstanding that current disqualification. In our view, the above is a good measure for “leaving no place and no one behind” in terms of bringing both the informal and formal traders at par for the purpose of contributing to the fiscus.
It is advisable for all the traders to keep themselves up to date with such notices so that they do not find themselves on the receiving end should Zimra commence its audits.
The existence of an informalised sector is cancerous and has remained the second after international tax evasion through transfer pricing and money laundering, the vein that continues to divert the most needed tax revenues for the underfunded African governments. The informal sector tends to strive under weak institutions, high unemployment rates, cash economy and agricultural based economies. These create an opportunity for the informal sector to operate under the radar. In a cash economy there is high opportunism for falsification of records and under-declaration of sales. It is from this background that we feel the measures announced by the minister, while good enough, may not provide sufficient guarantee that Zimra and the government will raise taxes from the informal sector.
For as long as the banking system cannot capture all the currencies in circulation in the economy, particularly the United States dollar, the informal sector still has a life outside the tax system.
Zimra should embrace the informal sector instead of hammering them with penalties and threatening their businesses. An amnesty may be required to allow the sector to come forward and register for taxes without having to worry about debt taxes as well as education on the benefits of paying taxes and incentives that come with it. Clear information and communication with the informal sector about the purpose, structure of tax and the budget transparency and actual spending of tax revenue on local development in line with government devolution policy may encourage tax compliance. In addition, Zimra should ensure there is sufficient skilled revenue authority capacity to implement the taxation policy. Tax administration systems should be flawless. When they become onerous very few will be willing to pay tax.
Alternatively, the government can place tax points at source where the informal traders procure their supplies. The 30% withholding tax on tenders is a good example. Regarding farmers, taxation policy can be aligned to the government command farming whereupon the recovery of government inputs is done, and tax is recovered at the same time government recovers it inputs.
In conclusion, the new measures by the minister are most welcome but should be supported by other robust policies if the government is to benefit from the informal sector tax revenues wise.
Tapera is the founder of Tax Matrix (Pvt) Ltd and CEO of Matrix Tax School. He writes in his personal capacity.
