EDITORIAL COMMENT: Tuckshops need to stay, but become legal

THE full formalisation of the economy is required so that tax avoidance is eliminated and everyone operates their business under the same safety and similar rules, but as Minister of Industry and Commerce Dr Sithembiso Nyoni acknowledges, it needs to be done in ways that do not destroy what people simply want to regularise.

Dr Nyoni has been visiting downtown Harare city centre to get a feel of just what is actually there, what the businesses are doing, and not doing, why problems have been arising within supply chains, and what do the small informal businesses need to become regularised taxpayers.

Her walk around the area identified a string of problems. These tuckshop businesses only use the United States dollar and these days manufacturers are making direct deliveries, rather than going through a wholesaler, to even very small companies. 

Because the small shops pay for their goods in US dollars, some manufacturers give them preference and Minister Nyoni listed a range of products that are frequently short on supermarket shelves, or even missing. 

Her list of the most common products that these days seem to be almost totally diverted to the informal sector seem to come from just two manufacturers, both of whom in the past have shown a serious preference for US dollars in local payment, one even trying to make that the norm before being shot down by Government. 

The other seems to have been one of the most enthusiastic in using guesses of future exchange rates when supplying some products for sale in local currency, using an exchange rate not only above the official rate, but even above the black market rates.

In the past other manufacturers were keen to divert other products, all of them essentials, into the informal sector while withholding or reducing deliveries to supermarkets and other large retailers. 

This is not a new problem.

Apparently several suppliers to the informal sector, while accepting payment in foreign currency, are willing to issue receipts in local currency, which makes it harder to track down just what is going on.

There are limits over what the Government can do when it comes to making suppliers behave and being fair to all customers, but they certainly apply pressure and if the worse comes to the worse use legal means to stop a manufacturer discriminating on the grounds of the currency used for payment, and stop a manufacturer issuing a receipt in any other currency, but the currency used, so that it becomes possible to check.

Another major problem is the lack of tax payment. Many owners of these smaller businesses would be classified as sole trader by Zimra if they were regularising themselves, meaning they benefit from the wide tax-free band and the bands of the lower rates of tax. So there is probably not much income tax being lost.

Where the losses will occur will be with VAT. Sure the manufacturer or the supplier or the importer has paid VAT on the value they added all the way to delivery to the shop, but the revenue from the final retail step is missing. 

Zimra insists that receipting for medium and larger businesses is done on fiscalised devices, where the VAT can be calculated and checked and so payment is difficult to avoid. 

Business owners have to buy these devices, and perhaps Zimra can figure out a cheaper solution or cheaper device for the smaller businesses.

Minister Nyoni is correct that the Government needs all who should be paying tax to do so. It is unfair if the few have to support the many, and it also gives a trading advantage to the smaller businesses. Individually they may not be expected to pay that much tax each, but when their taxes are combined they will probably amount to a reasonable sum that will allow the Government to do more and provide more services for precisely the communities that support these tuckshops.

Among their problems in regularising are the fees they need to pay, including the licence fees of a local authority. 

These fees are supposed to cover the costs of ensuring that shops are safe, healthy and not a fire risk, and that is a needed service even if, for example, the City of Harare is a bit slack at the moment.

But we do not see why the fees should be same for everyone. Perhaps something based on the area of a shop might be more appropriate. 

This is how property is rented in any case, as so much a square metre, and that is why an objection based on higher rents for regularised traders does not make sense unless they move into bigger premises.

The Minister was impressed by those in the informal sector, from vendors upwards, who have empowered themselves and are making a living and supporting their families. That sense of empowerment and the ability to earn a living is what she wants to retain, and to grow the sector so more will benefit.

But she also wants a process in place so that these empowered Zimbabweans can operate within the law, even if the law has to be changed to remove unfair barriers, will pay their taxes and will generally be normal businesses except perhaps operating on the smaller side.