More measures to ensure tax compliance in informal sector

THE Government has proposed further measures to promote formalisation and tax compliance within the informal sector, amid growing concerns from formal businesses about an uneven playing field.

Formal retailers have raised concerns about the unregulated informal sector, arguing that it offers goods at significantly lower prices due to non-compliance with statutory obligations such as registration, taxes, licensing fees, and labour laws. Over the past decade, the economy has undergone a structural shift, with formal businesses collapsing and informal activities, including vending, increasing. In many cases, imported goods of inferior quality and low price are sold, pushing local products to the margins.

On Thursday, President Mnangagwa chaired a meeting focused on economic developments. Vice-Presidents Constantino Chiwenga and Kembo Mohadi, along with all economic ministers, attended and discussed measures to address economic challenges, including developments in specific sectors like retail.

In a statement yesterday, Finance, Economic Development, and Investment Promotion Minister Prof Mthuli Ncube noted that since 2021, the Zimbabwean economy has grown strongly, averaging 5,5 percent annually, driven by expansion across most sectors.

However, the projected two percent economic slowdown for 2024 is largely due to the El Niño-induced drought, which has negatively impacted agricultural production and electricity generation, with knock-on effects across the wider economy.

Despite this growth, Prof Ncube noted a growing trend of informalisation, particularly in retail and wholesale, posing serious risks. He said that since early 2023, some manufacturers have bypassed formal wholesalers and retailers, supplying goods directly to customers and informal traders. This has disadvantaged formal businesses, who compete with informal traders operating outside regulatory frameworks, including tax compliance, licensing, and labour laws.

To address these challenges, the Government has implemented measures through the 2024 Mid-Term Budget and Economic Review and the 2025 National Budget to improve formalisation. These include the route to market initiative, enforcing tax compliance among unregistered Micro and Small Enterprises (MSMEs).

A five percent withholding tax was introduced for non-registered MSMEs, payable to wholesalers and manufacturers, and the VAT registration threshold was lowered. Certain goods, such as alcoholic and non-alcoholic beverages, dairy products, washing powder and detergents, and sugar, are now considered smuggled unless the seller provides proof of customs duty payment. Taxation of the emerging sector and compelling SMEs to use point-of-sale machines and operate a bank account linked to the Zimbabwe Revenue Authority were also introduced.

Despite these efforts, Prof Ncube acknowledged that further measures are needed. He said that in consultation with business and industry stakeholders, and the Ministry of Industry and Commerce, the Government is proposing further steps to enhance formalisation and tax compliance.

These include mandatory use of point-of-sale machines, requiring all informal traders to adopt electronic payment systems, and adopting international best practice on tax payment, ensuring every eligible taxpayer complies.

“Level the playing field between formal and informal businesses by discouraging manufacturers from supplying directly to end users and the informal market. Establishment of a Domestic Inter-agency Enforcement Team to enforce compliance in the informal sector and to enforce collaboration between Local Authorities and Central Government in the licensing and enforcement processes,” he said.

Prof Ncube also announced that the Reserve Bank of Zimbabwe (RBZ) will introduce further measures in the Monetary Policy Statement in February. The Government also plans to streamline regulatory processes, fees, and charges, and eliminate duplication by government agencies, to reduce the cost of doing business.
Other proposed measures include enforcing the Indigenisation and Economic Empowerment Act, ensuring compliance with provisions related to reserved sectors; expanding support through the Industrialisation Fund, complementing incentives like duty-free imports and Special Economic Zones benefits; and promoting local procurement, encouraging government procurement from local producers and suppliers.