shloboe boe
THE recent announcement by the Government of Zimbabwe to crack down on suppliers dealing directly with the informal sector marks a significant intervention in the economy.
As highlighted in our report, the Government has introduced a series of measures aimed at formalising the economy, curbing the excessive growth of the informal sector, and levelling the playing field for formal businesses. These actions should address some of the pressing challenges.
The informal sector has long been a double-edged sword in Zimbabwe’s economy. On one hand, it provides livelihoods for millions of citizens. Informal trade often represents resilience and ingenuity, filling gaps in the supply chain where formal structures fail.
On the other hand, its rapid growth poses significant challenges. Informal businesses operate outside the tax net, depriving the Government of much-needed revenue and creating an uneven playing field for formal businesses that are burdened with regulatory compliance and taxes.
The Government’s concerns are valid. If left unchecked, the informal sector could continue to undermine formal businesses, creating an unsustainable economic environment.
However, the question remains: are the proposed measures sufficient to address the root causes of this issue?
The Government’s strategy includes several key initiatives, such as:
— A five percent withholding tax on non-compliant suppliers.
— Mandatory licensing for all businesses in the retail sector.
— Mandatory issuance of point-of-sale (POS) machines for all new business accounts.
These measures appear well-intentioned, aiming to formalise the economy and improve revenue collection. However, their implementation could prove challenging, particularly in a nation where the informal sector is deeply entrenched.
The five percent withholding tax, for example, is likely to face resistance from suppliers who rely heavily on informal traders for their sales. This could result in increased costs being passed down to consumers, further fuelling inflation and exacerbating the economic hardships faced by ordinary people. Additionally, enforcing this tax will require robust monitoring and auditing mechanisms.
Similarly, the push for mandatory licensing and POS machines, while commendable raises some questions. Many informal traders lack the financial literacy or resources to comply with such requirements.
The Government’s focus on formalisation is understandable and commendable. However, formalising the economy should not come at the expense of the very people that authorities seek to uplift.
A more holistic approach is needed — one that addresses the systemic issues driving informal sector growth, while providing pathways for informal traders to transition into the formal economy.
For instance, the Government could consider offering incentives for informal traders to register their businesses, such as tax breaks, access to affordable loans, or capacity-building programmes.
Collaborating with financial institutions to simplify the process of opening bank accounts and acquiring POS machines would also be a step in the right direction.
Bongani Ndlovu