Farai Mabeza, Senior Staff Writer 
TAX experts believe the informal sector is still not ready to feed into national coffers due to several compliance issues amid concerted efforts by the government to widen the country’s tax base.
This comes after a recent report by the Zimbabwe National Chamber of Commerce (ZNCC) highlighted that the informal sector, now the country’s dominant economic player, was primed to grow even further.
“At this point in our country, the informal sector is not yet ready to be fully compliant, especially given the new legislation which requires these informal players to switch from income taxes to VAT (value added tax) registration.
“VAT registration on its own comes with costs. We have issues around fiscalisation where they need to purchase fiscal machines. I think the Zimbabwe Revenue Authority (Zimra), together with the Ministry of Finance, needs to incentivise the informal sector to be fully compliant with the new regulations,” Baker Tilly Central Africa tax partner Simba Hamudi told The Financial Gazette this week.
“For the informal sector to purchase goods from manufacturers, wholesalers need to be VAT registered. After VAT registration they need to purchase a fiscal machine which costs US$500 to US$700. I think Zimra can issue these machines to the informal traders since they are collecting VAT on behalf of the government.”
He said informal businesses believe that they are paying taxes already, which hampers government efforts to tax the sector.
“When they import goods, they pay taxes at the border post, when they buy goods they pay taxes, and to their understanding, those taxes are enough,” Hamudi said as he urged a targeted approach.
“There is still a need to look at informal traders who can continue to do presumptive taxes because with income taxes and VAT it can be very difficult for the informal traders. There is also a need for thresholds categorisation of these players.”
He said the new domestic Tax and Revenue Management System (TaRMS), which Zimra says is 80 percent complete, could alleviate some of the challenges associated with roping the informal sector into the tax net.
“TaRMS will be effective if the government implements what they say TaRMS will be. They said it would be connected to the registrar of companies, banks, and several other government institutions. With TaRMS, every company registered at the registrar of companies is simultaneously captured at Zimra. Thus, Zimra will have a database of companies that are supposed to register for taxes,” Hamudi said.
TaRMS is designed to address significant shortcomings under the current system and to improve further the country’s ease of doing business climate.
Another expert, Tapiwa Vela-Moyo, a tax manager at Baker Tilly says there is need for more education on the importance of all economic players to be tax compliant.
“I don’t think most of them are ready. I think it requires a lot of education to explain why there is that requirement to tax them, why the tax is needed, how it benefits the country. I think Zimra needs to embark on awareness programmes.
“Most of them cannot fulfil Zimra’s requirements, so Zimra will also need to find ways of trying to incorporate this sector. So, there is a need to separate the requirements between large formal corporates and small players in the informal sector,” Vela-Moyo said.
The ZNCC report traces the genesis and significant rise in informality in Zimbabwe to 1991 when the country adopted and implemented the Economic Structural Adjustment Programme.
The informal sector also emerged as a strategy for generating income during the economic crisis of 2000 to 2008 as a result of hyperinflation and public service cuts. The necessity for households to augment revenues from the formal sector kept the informal sector alive after the crisis.
The Covid-19 pandemic has (also) seen a rise in informal sector activities as people have struggled to eke out a living.
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