Online Reporter
Business Reporter
ECONOMIC analysts and captains of industry have called on the Government to drastically cut or eliminate the US$25 000 annual sales threshold for Value Added Tax (VAT) registration in the upcoming 2026 National Budget.
The proposal is meant to reduce widespread tax evasion among both formal businesses and the booming informal sector. Under current tax laws, a business must register for a VAT certificate only when its yearly sales surpass US$25 000. Registered formal businesses are not permitted to do business with companies that do not have this certificate.
However, the legal wall is constantly breached through “shadow transactions,” where formal companies sell goods to unregistered informal traders. This practice allows both parties to avoid the obligation of declaring and remitting VAT to the tax authority, resulting in revenue losses to the Treasury.
A curious market trend highlights weaknesses in the current system. Prices charged by many formal, VAT-registered businesses are often higher than those of informal businesses. Analysts argue that this price disparity demonstrates an anomaly, suggesting that the supply chain is not fully taxed. If VAT were being correctly collected, the price difference between operators in the two sectors would be narrower.
Analysts believe reducing or scrapping the VAT threshold will force several informal traders to register for tax purposes, which would create a clearer paper trail. If a formal business sells to a newly-registered informal trader, they can reference a legitimate tax number on the transaction. This simple yet powerful mechanism allows the tax authority to track the goods from the formal seller to the now-compliant informal buyer, directly improving the collection of tax revenue for the Treasury and closing the current evasion loophole.
Economist Professor Gift Mugano, argues that the current US$25 000 minimum sales threshold for Micro, Small and Medium Enterprises (MSMEs) to obtain a VAT certificate and formally trade with established businesses is counterproductive. He said formal businesses were already actively engaging with the informal sector, regardless of whether the MSMEs possessed a VAT certificate and he hence proposed the Government should eliminate the threshold.
“Since formal businesses are already trading with the informal sector with and without a VAT certificate, I don’t see any reason to continue to enforce the US$25 000 minimum sales threshold for MSMEs to trade with established businesses,” said Prof Mugano.
“Rather, the Government should allow MSMEs to get VAT certificates on application and allow them to trade with formal businesses formally; this will improve tax compliance going forward.”
Undeniably, there will be cases where businesses will attempt to evade VAT, especially when engaging in cash transactions, which are inherently harder to trace, argues Mr Tobias Musara, a local economist.
“However, the elimination of the VAT minimum sales threshold will significantly formalise trade and, to some extent, help enforce compliance. By allowing MSMEs to register for VAT voluntarily, the system creates a necessary audit trail through input and output VAT credits, thereby increasing the risk of detection for evasion and fostering a broader culture of tax compliance,” he said.
Traditional brick makers, Willdale and McDonald, recently voiced strong concerns, asserting that the primary reason their products have become uncompetitive in the market is widespread VAT evasion by new entrants. They claim these newer operators are deliberately dodging Value Added Tax payments, allowing them to offer bricks at substantially lower prices.
“We are facing a big challenge mostly from new players who have proliferated the local market and they are offering bricks at low prices because they are not compliant with many regulations,” Mr Nyasha Matonda, chief executive of Willdale, one of the country’s oldest brickmakers, said in an interview.
“As a result, our price is higher compared to competitors who are not compliant with all that… that is why they charge very low prices. We cannot price like them because they have no cost of compliance. They have opened brick companies around us, in Ruwa, Bromley and Chikurubhi; they are all over. This has been a very big challenge for us, formal brick companies, particularly us, Willdale and MacDonalds in Bulawayo. Our volumes have been seriously affected. Some companies have even closed,” Mr Matonda added, in an apparent reference to the closure of Beta Bricks.
Beta entered voluntary corporate rescue in December last year after facing significant financial and operational challenges.
An investigation by this publication has corroborated Mr Matonda’s statement, finding out that most transactions by new players are cash-based, facilitating tax evasion. They issue non-fiscalised receipts or informal invoices, or in some cases, no receipts at all for direct-to-site sales. Coincidentally, the Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube, had previously warned that the dominance of cash transactions was a threat to tax collections.
Prof Mugano also suggested that municipalities should assist in collecting taxes from the informal sector. However, he argued that for councils to be effective, they must first provide decent, organised working spaces for MSMEs.
Currently, when informal traders operate haphazardly, tax compliance becomes a “nightmare.”
By providing formal operating environments, collection efforts would be significantly streamlined and compliance would naturally improve.
He recommended that the Government should institute tax incentives for corporates, especially those in the mining sector, to partner with the Government and councils. The partnership would facilitate corporate social investments into constructing the required working spaces for MSMEs.
Other VAT-related issues stakeholders want changed include the issue of VAT refunds.
The ZNCC in its policy submissions for the 2026 national budget statement said that complex and restrictive Value Added Tax policies are crippling formal businesses and eroding competitiveness ahead of the 2026 National Budget Statement. In its policy proposals, the ZNCC highlighted a series of systemic issues, particularly concerning multi-currency VAT and the Government’s recent move to shift certain products into the exempt category under Statutory Instruments 15 of 2024 and 248 of 2023.
The business lobby group argued that reclassifying products as exempt fundamentally increases the cost of doing business. Under the exempt status, unlike zero-rated or standard-rated products, businesses are barred from claiming the 15 per cent input tax, a critical component of VAT neutrality.
The cumulative impact, according to the ZNCC, is that formal businesses are carrying a disproportionate tax burden, which incentivises a shift towards the informal economy, thus narrowing the tax base and undermining fairness.
To restore confidence and competitiveness, the chamber has urged the immediate repeal of Section of the Finance Act and Section 38 of the VAT Act, which currently mandate tax payments solely in the currency of trade. The chamber maintains that reforms are essential to restore VAT neutrality and alleviate the severe liquidity strain currently plaguing the formal business sector.
