Zimra flags cash economy as major tax threat

THE Zimbabwe Revenue Authority (ZIMRA) has identified the country's growing cash economy as one of the biggest threats to sustainable revenue collection, warning that widespread cash transactions are undermining tax compliance, limiting transaction visibility and weakening the formal economy.

The concerns were raised by ZIMRA board chairperson Antony Mandiwanza, who said reducing cash dependency had become a strategic priority as the authority seeks to strengthen tax administration and broaden the country's revenue base.

"High cash usage continues to constrain transaction visibility and compliance monitoring," Mandiwanza said.

His remarks underscore growing concern within the revenue authority that the increasing use of cash is facilitating tax evasion and fuelling the expansion of Zimbabwe's informal economy.

Despite the challenges, ZIMRA recorded strong revenue growth in 2025.

Commissioner-General Regina Chinamasa said revenue collections reached US$7.65 billion during the year, representing a 23.8 percent increase from US$6.18 billion collected in 2024 and a 67.8 percent rise compared to US$3.09 billion collected in 2021.

However, Chinamasa cautioned that the country's revenue base remains heavily concentrated.

She revealed that 73 percent of all revenue collected in 2025 came from just four tax categories — Value Added Tax (VAT), Pay As You Earn (PAYE), Excise Duty and Corporate Income Tax.

"Our revenue base remains concentrated in these four major heads, while continued broadening of the tax base remains important for sustainable domestic resource mobilisation," she said.

The concentration, she warned, exposes Government finances to significant risks should consumer spending or formal employment weaken.

Mandiwanza also identified the expanding informal sector as another major challenge facing the tax authority.

"The expanding informal economy requires innovative compliance approaches and data-driven oversight," he said.

According to ZIMRA, the cash economy and the informal sector are closely linked, with cash transactions making it easier for businesses to under-report income, under-declare sales and avoid VAT obligations.

The authority believes this has created an uneven economic environment where compliant businesses shoulder a disproportionate tax burden while many cash-based operators remain outside the tax net.

Economic analyst Kuda Mugova argued that the preference for cash should not be viewed solely as a tax compliance issue but also as a response to existing economic policies.

"ZIMRA is right to worry about the cash economy, but this should not be framed only as tax evasion," Mugova said.

"It is also a rational response to the incentives in the economy. A prolonged two percent transaction tax makes digital payments and bank transfers costly, so formality itself becomes expensive."

He said every swipe, transfer or mobile money transaction attracts additional costs, making cash the cheaper and more attractive option for many Zimbabweans.

Mugova also pointed to Zimbabwe's high level of dollarisation, where more than 70 percent of transactions are reportedly conducted in United States dollars.

"In a dollarised economy, people prefer hard cash because it preserves value and gives pricing flexibility. But the price is heavy. Money moves outside banks and formal payment systems, weakening audit trails, deposit mobilisation, credit creation and domestic resource mobilisation," he said.

He argued that people are both pushed and pulled towards cash.

"People are pushed into cash by transaction taxes, bank charges and low trust. They are pulled into cash by liquidity, control and USD value preservation," Mugova said.

"ZIMRA can improve enforcement, but Treasury must also fix the incentives. If formal transactions remain costly and confidence remains weak, informality will continue to look rational."

To strengthen compliance, Mandiwanza said ZIMRA has invested heavily in digital systems and artificial intelligence to improve tax administration.

He said the authority's Tax and Revenue Management System had improved return filing compliance from 51.85 percent to 70.56 percent, while automated VAT systems had increased VAT compliance to 81 percent overall and 99 percent among large taxpayers.

He added that artificial intelligence would transform the authority's ability to identify tax non-compliance while simplifying compliance for taxpayers.

Stakeholder feedback has also shown that improved digital services and easier border processes are helping reduce reliance on cash transactions.

However, Mugova said digitalisation alone would not solve the problem unless Government addressed the underlying incentives driving cash usage.

Mandiwanza acknowledged that ZIMRA continues to face operational challenges, including inadequate long-term funding and the need for a dedicated headquarters to improve institutional efficiency.

The authority is also pursuing greater collaboration with local authorities to identify businesses that are formally registered with municipalities but remain outside ZIMRA's tax system.

Financial analyst Wafa Kuchera said the preference for cash must be understood within Zimbabwe's economic history.

"The cash economy has to be recognised as a survival response by ordinary citizens, arising from the country's hyperinflationary episodes that left a huge trust deficit," he said.

He called for a significant reduction in banking charges and transaction costs, together with stronger guarantees on the value of bank deposits to rebuild public confidence in the formal financial system.

"Current efforts continue to fall short in giving ordinary citizens the confidence to rely on the formal sector," Kuchera said.

"That hesitation to use formal banking systems leaves both ordinary citizens and ZIMRA vulnerable in similar ways, as cash has very little traceability and recourse. As ZIMRA turns its focus onto the cash economy, we urge them to be mindful of those who are still in survival mode and try to separate them from those who are wilfully evading taxes."

Analysts say tackling Zimbabwe's cash economy will require more than stronger tax enforcement. They argue that reducing the cost of formal financial transactions, rebuilding trust in the banking system and creating incentives for businesses to formalise will be critical if Government is to broaden the tax base and sustain long-term revenue growth.