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GOVERNMENT has been calling for the formalisation of Small to Medium Enterprises after recognising that they have become the main drivers of the ‘new economy’ in Zimbabwe, but most of them are operating secretly to evade tax.The formalisation transition has been facing resistance due to several factors including capital constraints, but the biggest barrier remains centred on tax evasion.
Post Business interviewed some business pundits who were of the view that several players wanted to formalise and stop operating in the shadows but feared being crippled by the ‘hefty’ taxes charged by the Zimbabwe Revenue Authority.
Last year in October Zimra commissioner general, Mr Gershem Pasi announced an amnesty programme to all business, both SME’s and large scale.
Government through the Finance Act (No 2) of 2014 made provision for an amnesty on penalties, interest, and prosecution for the non-payment and other irregularities in connection with all taxes administered by Zimra during the period beginning February 1, 2009 to September 30, 2014.
Businesspeople were supposed to file their applications for amnesty to the commissioner general between the period of October 1, 2014 and March 31, 2015, but in April Zimra further extended the deadline to June 30 after requests from business lobby groups.
According to the amended SME Act of 2011 SME’s are classified into medium, small and micro varying in each economic sub-sector that is, agriculture, mining and quarrying, manufacturing, construction, energy, financial services, transport, retail, tourism and hospitality services and the arts, entertainment culture, education and sport.
The number of full-time paid employees, total annual turnover and gross value of assets determine the class of an enterprise.
However, business pundits said the same cataloging system should be considered on taxation by Zimra if it is to achieve its endeavour to tap revenue flows to fiscus from the informal sector.
Confederation of Zimbabwe Industries Manicaland chairman, Mr Richard Chiwandire said it is apparent that taxes have to be paid but creative, realistic strategies of widening the tax base have to be employed.
“There have been several large scale company closures and the informal sector is clearly the main target now to widen the country’s tax base.
“However, to reach out to the sector Zimra should not be hard-line but there is need to categorise and register these players sector by sector taxing them differently,” said Mr Chiwandire.
Zimbabwe National Chamber of Commerce national president, Mr Hlanganiso Matangaidze said there was need for the Ministry of Small and Medium Enterprises and Co-operatives Development to go back to the drawing board and assess the sector.
Mr Matangaidze said some of the presumptive tax revisions announced early this year by the Finance Minister, Cde Patrick Chinamasa were still not rationale on the ground to boost fiscal revenue flows.
“I feel there is need to go back on the ground and come up with mechanisms of collecting taxes with buy-in from the business community.
“Looking on the presumptive tax for instance, Small scale miners were exempted, yes that was good but what of the saloon operators $1500 per quarter presumptive tax? That is not achievable . . .
“Zimra should give some SMEs time to grow, whilst for those established it can tax them according to their class and annual turnover.
“That is the only way to defeat tax evasion and rope in players in the informal sector,” said Mr Matangaidze.
According to the Zimbabwe Agenda for Socio-Economic Transformation Government views SMEs as key economic drivers, but Mr Matangaidze said little was being done to cushion them in the current competitive global world.
He proposed that Government implements a tax relief programme to certain SMEs sub-sectors to cushion them and allow them to grow.
According to the Minister of Small and Medium Enterprises and Co-operatives Development, Cde Sithembiso Nyoni more than $7.4 billion of money not benefiting fiscus was circulating in the informal sector.
A report by the FinScope Micro, Small and Medium Enterprises Zimbabwe Survey Report of 2012 revealed that 85 percent of the MSMEs in the country are not registered.
The rise in MSMEs in the country is due to the massive retrenchment and dearth of the country’s manufacturing sector which currently requires a huge capital boost to revamp operations.
Last years in May Cabinet tabled the Second MSME Policy Framework (2014-2018) which is expected to introduce comprehensive measures to support the sector.
Among such measures are tax holidays for financiers that provide funds to the sector, whilst registered MSME’s will also be given a lengthy tax-free grace period to cushion them as they regularise their operations.
Under the framework Government also plans to review customs duty and tariff regimes to assist players in the sector to access affordable raw materials.
Online Reporter