Online Reporter
Nelson Gahadza
Business Reporter
ECONOMIC and tax experts say Zimbabwe’s Route to Market Levy, introduced in 2024 under Section 81A of the Value Added Tax Act, has gone some way in improving tax compliance, driving formalisation of trade and reducing revenue leakages through informal channels.
While analysts broadly acknowledge the policy’s objectives as progressive and necessary in strengthening the country’s revenue collection framework, they say its long-term success will depend on creating a balanced implementation model that protects compliant businesses while avoiding excessive operational burdens on the formal sector.
The levy was introduced at a time when authorities were seeking to widen the tax base and improve accountability across supply chains, particularly in sectors where informal trading activities had resulted in significant revenue leakages.
The measure also formed part of wider fiscal reforms aimed at promoting fairness between compliant and non-compliant market participants.
However, economists and tax specialists say the transition phase has highlighted the need for clearer administrative guidance and stronger collaboration between the Zimbabwe Revenue Authority (ZIMRA) and businesses.
Under a conventional withholding tax system, the withholding agent deducts tax from funds payable to another party. Under Section 81A, however, the manufacturer or wholesaler becomes responsible for determining whether a buyer is tax compliant and, where applicable, applying an additional five percent levy.
Mr Fidelis Manyuchi, a partner at Scanlen & Holderness, said the broader intention behind the measure remained commendable, particularly in promoting transparency and encouraging businesses to formalise operations.
“Tax systems work best when they create incentives for businesses to move toward formality, certainty and documented trade,” he said.
Mr Manyuchi added that the Route to Market Levy reflects the Government’s intention to improve accountability within supply chains and ensure that compliant businesses are protected from unfair competition arising from informal trading practices.
“However, as with any major tax reform, implementation mechanisms are critical. If not carefully administered, there is a risk that compliance obligations become concentrated on formal sector operators while undocumented trade becomes comparatively more attractive,” he said.
Experts say one of the major challenges lies in the requirement for wholesalers and manufacturers to conduct real-time verification of customers’ tax compliance status, including validating ITF263 tax clearance certificates before concluding transactions.
Businesses also argue that this process can be difficult in practice, particularly where reliable and publicly accessible verification systems are not always readily available.
As a result, companies are often required to make immediate compliance decisions that may later be reviewed during retrospective audits.
N Richards Wholesalers director and Confederation of Zimbabwe Retailers board member Mr Archie Dongo said the policy objective of improving tax compliance was important for strengthening the economy, but cautioned that implementation measures should avoid unintentionally creating incentives for informal trade.
“When formal businesses are effectively required to police compliance on behalf of the tax system, there is a possibility that some operators may begin looking for ways to circumvent the obligation, especially in highly competitive sectors,” he said.
Mr Dongo noted that if the additional five percent levy significantly increases the cost of sourcing goods through formal channels, some informal traders could shift toward smuggled or undocumented products, which may ultimately reduce broader tax collections across the supply chain.
“For example, where informal traders avoid formal wholesalers and source smuggled goods instead, the Government potentially loses import VAT, customs duty, corporate taxes from compliant manufacturers and wholesalers, as well as the levy itself,” he said.
He said this highlighted the importance of ensuring that implementation mechanisms support formal businesses while still achieving the Government’s broader objective of improving tax compliance.
A tax expert who preferred anonymity said businesses had generally welcomed the Government’s commitment to improving tax discipline, but noted that some uncertainty had emerged during the implementation process.
“Because the framework evolved through a sequence of legislative amendments, ministerial pronouncements and public notices, businesses sometimes had to adapt to changes before the full legal framework was fully settled,” said the expert.
“That naturally created uncertainty within the market, particularly for compliant operators trying to apply the rules correctly while avoiding future disputes. The positive aspect, however, is that these are transitional issues that can still be addressed through clearer administrative guidance and stakeholder engagement,” the expert added.
Analysts also say that the additional five percent cost imposed on transactions involving non-compliant buyers may unintentionally affect pricing dynamics within highly competitive and price-sensitive sectors.
Some economists warn that if implementation challenges are not carefully managed, some traders may opt for informal channels where transactions remain undocumented.
“Instead of increasing fiscal visibility, there is a risk that the levy may inadvertently make formally documented trade more expensive in some sectors,” another tax expert said.
“That is why it is important for authorities to continuously review the operational impact of the framework to ensure that the policy ultimately broadens, rather than constrains, the tax base.”However, experts emphasise that the challenges being experienced are not unusual for a new tax administration measure and can be addressed through policy refinement and stronger institutional coordination.
Stakeholders are now calling for practical reforms that preserve the policy’s objectives while improving ease of compliance for formal businesses.
Among the proposals being advanced is the introduction of a formal administrative “safe harbour” provision that would protect businesses acting in good faith where they rely on apparently valid customer documentation.
Analysts say such a mechanism would provide greater certainty for compliant operators and reduce fears of punitive retrospective assessments.
There are also calls for ZIMRA to issue more comprehensive technical guidance supported by practical examples covering common trading scenarios and complex compliance situations.
Economist Mr Walter Mapfumo said sustained dialogue between Government, tax authorities and the private sector is essential to ensure that the levy achieves its intended objectives without weakening confidence in the formal economy.
“To ensure the policy achieves its goal of fostering a transparent and accountable tax environment, authorities must continue engaging industry and addressing operational concerns as they emerge,” he said.
He said a collaborative and predictable implementation process will help strengthen confidence in the tax system while supporting the growth and stability of formal businesses.
