Govt mulls taxing informal sector

Business Reporter—

Government is looking into the possibility of taxing the informal sector which has so far remained out of the tax net, depriving Treasury of revenue. Reserve Bank of Zimbabwe Governor Dr John Mangudya said Government needs to expand the tax base and extend the net to those who are also reaping benefits from the tax that is being paid by a few corporates and individuals.“We need to plug the leakages. We need to expand the tax base. If Zimbabwe is 70 percent, 75 percent, 80 percent informal sector it means we must have a tax that talks to the informal sector.

“Maybe we now need a flat tax for everyone who is business in terms of the informal sector, say maybe $10, $20 per month because those guys are also enjoying the benefits of the few companies that are paying,” said Dr Mangudya.

He was speaking at the Confederation of Zimbabwe Industries manufacturing survey launch yesterday.

“I think it might be high time we looked into the possibility of introducing a flat tax, not presumptive tax. You cannot have presumptive tax to the informal sector in Mbare because they do not sell to those who are formal.

Last month the Zimbabwe Revenue Authority announced that it had added nearly 4 000 tax players to the revenue collection system and will enforce more revenue collection strategies beginning January next year.

The new tax players were added to the net through the automation of the revenue collector’s systems, but this has not been extended to the informal sector. Tax avoidance and evasion are some of the issues that have contributed to the contraction in revenue collections in the country.

The tax collector’s focus is also on SMEs most of who are not also within the tax net. According to a FinScope SME Survey of 2012, SMEs employ approximately 5,7 million people. The sector is estimated to contribute more than 60 percent of the country’s GDP.

A World Bank survey of 2011 on 50 000 firms drawn from 99 countries showed that SMEs contribute to 66 percent of jobs in developing economies.