Presumptive tax triggers storm

ZIMBABWE's informal businesses, making up about 60% of the country's economy, say government missed the point when it moved to impose a monthly presumptive tax on small-to-medium scale enterprises (SMEs) operating informally before addressing several problems affecting them.

In November, Finance minister Mthuli Ncube said government would start collecting US$30 in monthly presumptive taxes from informal traders from 2021 to help improve revenue inflows into State coffers.

Tax collections have been affected by extensive de-industrialisation and a sharp drop in individual taxes following job losses.

To ensure compliance, government tasked landlords to collect the tax and remit to the Zimbabwe Revenue Authority (Zimra).

As part of the strategy, authorities will be targeting thousands of informal sector operators trading in buildings like the Gulf Complex and Kwame Mall in Harare and several others across the country.

These complexes, together with sprawling trading yards like Siyaso and the Glen View informal traders centre in Harare, have recently been the centre of attraction to millions of people thrown out of jobs following firm closures, and generate thousands of dollars daily, which circulate outside the formal system.

In the past, banks had moved on cite to encourage them to open accounts, but this failed.

The presumptive tax was the latest move in a series of recent strategies by government to track those operating outside the formal system and make them pay tax.

In 2018, the Treasury boss introduced a controversial 2% tax on all electronic transactions, which is now credited for helping the country ride out a sea of crises encountered in the past two years, including Cyclone Idai.

But on Monday, Zimbabwe Chamber of Informal Economy Association secretary general Wisbon Malaya spoke for the first time since the tax was imposed, saying the association was worried about the effect of the tax on businesses that were already under stress.

"The imposition of presumptive tax is not a good move by the government," said Malaya.

"Neither is it a practical approach. The government should first put in place a clear policy that protects the operations of informal traders at all levels before imposing these tax regimes," he told NewsDay Business.

Malaya said in countries where informal traders are taxed, governments support them with friendly policies.

He said in those economies, taxes were also fair for the SMEs.

Malaya said governments in those countries also gave informal traders platforms through which to participate in key decision-making processes.

He said policies in those economies were not imposed on informal traders.

"All this is still lacking in Zimbabwe," said Malaya.

"At the end of the day taxes on the informal traders are made on misinformed advice. At the moment not many can afford this presumptive tax. It has to be reviewed with conditions of a supportive informal sector policy framework. Unfortunately, we never recorded any of our members in receipt of COVID-19 business relief fund," he said, referring to an $18 billion industrial recovery package promised by government in May to help businesses ameliorate the effect of the COVID-19 pandemic.

Zimra is battling to expand its revenue base as the deteriorating economy makes it difficult to collect taxes.

In the past, the tax collector garnished accounts of defaulting businesses and charged heavy penalties to enforce compliance.

However, these measures have only worked in the formal sector.

At the height of the lockdown, announced by government to curb the spread of the pandemic, authorities pledged to support informal traders.

According to an International Monetary Fund working paper titled: Shadow Economies Around the World: What Did We Learn Over the Last 20 Years? published in 2018, Zimbabwe has the second largest informal economy as a percentage of its total economy in the world at 60,6%.