Treasury ropes in informal sector players to broaden tax base 

Business Reporter

MICRO and small enterprises are now required to use point-of-sale machines for every business transaction, while other entities in the emerging economy are mandated to pay presumptive taxes as part of measures to ensure sustainable inflows into the fiscus to support key public programmes.

Delivering the 2024 Mid-Term Budget and Economic Review on Thursday, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube also announced several measures to entrench the stability and wider use of Zimbabwe Gold (ZiG).

“Current legislation provides for the levying of presumptive tax on the basis of estimated income of persons engaging in specified trades.

“The dynamic nature of the economy requires a review of the presumptive tax regime, cognisant of the significant contribution of such operators to the gross domestic product (GDP).”

According to the Zimbabwe National Statistics Agency, the informal sector accounts for over 60 percent of the country’s GDP.

This sector is characterised by its lack of regulation, which presents challenges in terms of taxation and worker protection.

Minister Ncube offered significant cuts on presumptive taxes, in some cases, by as much as 80 percent, to encourage compliance.

Goods vehicles, taxi cabs and commuter omnibuses shall neither be licensed by the Zimbabwe National Road Administration nor be eligible for vehicle insurance unless the operator submits clearance from the Zimbabwe Revenue Authority (ZIMRA) Commissioner-General confirming that the operator is duly registered and has no outstanding tax debt.

“Mr Speaker Sir, the emerging sector mainly comprising micro and small enterprises has widely been transacting in cash and foreign currency, thus undermining aspirations to promote financial inclusion and transparency.

“In addition, I propose that micro and small enterprises be mandated to transact through point-of-sale machines and operate a bank account linked to the Zimbabwe Revenue Authority,” he said.

Economist Dr Prosper Chitambara said the informal sector in Zimbabwe, while substantial in its size and contribution to employment, posed significant challenges to tax revenue collection.

“Due to its largely unregulated nature, the informal sector operates outside the formal tax system. Many businesses in this sector do not keep formal financial records or have limited access to banking services, making it difficult for the Government to accurately assess and collect taxes.”

Small to Medium Enterprises Association (SMEA) president Farai Mutambanengwe said most SMEs were operating in the informal sector.

“So, what we need is a more functional economy; in other words, we need to create ability, we need to create a functional currency, we need to reduce the cost of using formal platforms, because now people are not even banking because it is too expensive,” he said.

In addition to making the informal sector contribute to the national purse, the minister announced measures to support local currency usage in the economy going forward.

Minister Ncube said: “In order to promote the circulation of the Zimbabwe Gold within banking channels, and curtail practices of money laundering, thereby combating the financing of terrorism, I propose payment of all presumptive taxes in local currency, regardless of the currency of trade.”

He also proposed that companies making more than half their income in foreign currency would need to pay their corporate taxes on a 50/50 percent basis in the local and foreign units, while corporates earning more than half their income in the domestic currency would pay taxes proportionately to the unit of trade.

Economist Ms Gladys Shumbambiri-Mutsopotsi believes the requirement for presumptive taxes to be paid in the local currency, regardless of the unit in which businesses trade, is a clear attempt to boost the demand and circulation of ZiG.

“This measure aims to reduce the reliance on foreign currencies, which has been a persistent challenge in Zimbabwe’s economy. It also aligns with broader goals of monetary sovereignty and stability,” she said.

The stability of ZiG is expected to anchor sustained economic growth.

Minister Ncube has revised economic growth projections, estimating a 2 percent expansion this year, from the initial forecast of

3,5 percent, citing the impact of the El Niño-induced drought on agriculture and low global mineral prices.

The minister said there will be no supplementary budget, a situation expected to help keep inflation in check. Inflation is projected to remain subdued, the minister said, on account of tight monetary and fiscal policies.