Call for balanced approach on Zimbabwe's route-to-market levy

ECONOMIC and tax experts say Zimbabwe's Route to Market Levy, introduced in 2024 under Section 81A of the Value Added Tax Act, has helped improve tax compliance, encourage formalisation of trade and reduce revenue leakages through informal channels.

While analysts generally view the policy as a progressive step toward strengthening the country's tax collection framework, they caution that its long-term success will depend on balanced implementation that supports compliant businesses while avoiding excessive burdens on the formal sector.

The levy was introduced as part of wider fiscal reforms aimed at broadening the tax base, improving accountability within supply chains and creating fairness between compliant and non-compliant market participants.

However, economists and tax specialists say the implementation phase has exposed the need for clearer administrative guidance and stronger collaboration between the Zimbabwe Revenue Authority (ZIMRA) and businesses.

Under the framework, manufacturers and wholesalers are required to determine whether buyers are tax compliant and, where necessary, apply an additional five percent levy to transactions involving non-compliant operators.

Mr Fidelis Manyuchi, a partner at Scanlen & Holderness, said the broader objectives of the measure remain important in promoting transparency and encouraging businesses to formalise operations.

"Tax systems work best when they create incentives for businesses to move toward formality, certainty and documented trade," he said.

Mr Manyuchi said the Route to Market Levy reflects Government's intention to improve accountability within supply chains and protect compliant businesses from unfair competition arising from informal trading practices.

"However, as with any major tax reform, implementation mechanisms are critical. If not carefully administered, there is a risk that compliance obligations become concentrated on formal sector operators while undocumented trade becomes comparatively more attractive," he said.

Experts say one of the major challenges lies in the requirement for wholesalers and manufacturers to conduct real-time verification of customers' tax compliance status, including validating ITF263 tax clearance certificates before transactions are concluded.

Businesses say the process can be difficult in practice, particularly where accessible verification systems are limited, forcing companies to make immediate compliance decisions that may later be scrutinised during retrospective audits.

N Richards Wholesalers director and Confederation of Zimbabwe Retailers board member Mr Archie Dongo said improving tax compliance is important for strengthening the economy, but warned that implementation measures should avoid unintentionally driving businesses toward informal trade.

"When formal businesses are effectively required to police compliance on behalf of the tax system, there is a possibility that some operators may begin looking for ways to circumvent the obligation, especially in highly competitive sectors," he said.

Mr Dongo noted that if the additional five percent levy significantly increases the cost of sourcing goods through formal channels, some informal traders may shift toward smuggled or undocumented products.

"For example, where informal traders avoid formal wholesalers and source smuggled goods instead, the Government potentially loses import VAT, customs duty, corporate taxes from compliant manufacturers and wholesalers, as well as the levy itself," he said.

A tax expert who preferred anonymity said businesses generally welcomed Government's commitment to improving tax discipline, but noted that uncertainty had emerged during implementation as the framework evolved through legislative amendments, ministerial pronouncements and public notices.

"That naturally created uncertainty within the market, particularly for compliant operators trying to apply the rules correctly while avoiding future disputes," said the expert.

Analysts also warned that the additional five percent cost imposed on transactions involving non-compliant buyers could affect pricing dynamics in highly competitive and price-sensitive sectors.

Some economists said that if implementation challenges are not carefully addressed, some traders may increasingly rely on informal channels where transactions remain undocumented.

"That is why it is important for authorities to continuously review the operational impact of the framework to ensure that the policy ultimately broadens, rather than constrains, the tax base," another tax expert said.

Despite the concerns, experts emphasised that the challenges are typical of new tax administration measures and can be resolved through policy refinement and stronger institutional coordination.

Stakeholders are now calling for practical reforms, including the introduction of a formal administrative "safe harbour" provision that would protect businesses acting in good faith when relying on apparently valid customer documentation.

Analysts say such measures would provide greater certainty for compliant operators and reduce fears of punitive retrospective assessments.

There are also calls for ZIMRA to issue more detailed technical guidance supported by practical examples covering common trading scenarios and complex compliance situations.

Economist Mr Walter Mapfumo said continued engagement between Government, tax authorities and the private sector would be critical in ensuring that the levy achieves its objectives without undermining confidence in the formal economy.

"To ensure the policy achieves its goal of fostering a transparent and accountable tax environment, authorities must continue engaging industry and addressing operational concerns as they emerge," he said.

He added that a collaborative and predictable implementation process would help strengthen confidence in the tax system while supporting the growth and stability of formal businesses.