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Zimbabwe's tax plan has informal traders tangled up
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Mediline Sibanda opened her hairdressing business 13 years ago in Bulawayo's bustling central business district where she operates alongside other vendors and traders that are part of the country's thriving informal economy.
Like many women in the informal sector, Sibanda is juggling motherhood with trying to provide for her family. The one-room salon she shares with a cell phone vendor has chairs rented by other hairdressers and a large bench for customers waiting their turn. There is no paperwork, no cash registers, no regulation.
Zimbabwe's government has struggled to force the country's millions of vendors and traders in the informal economy - where most Zimbabweans are now employed and make their living - to pay corporate and personal income taxes based on the money they are making.
Much of the Zimbabwean economy operates informally with vendors selling their wares and services on the sides of main roads or from their homes, rather than through formal, registered businesses.
Finance Minister Mthuli Ncube has proposed that starting in 2025 larger vendors in the informal sector - such as car dealers, hardware vendors, grocers, home ware sellers, clothes makers and lodges - must register with the Zimbabwe Revenue Authority, or ZIMRA, transact with sales machines, and maintain records of all transactions.
However, informal vendors such as Sibanda and groups advocating for women – who mainly make up the informal sector – argue that it is unfair to seek revenue from a miniscule source compared to the vastly greater sums lost through corruption in the broader economy.
Hair salons and other small vendors pay a presumptive tax - a simplified tax - that was introduced by the government in 2005, and expanded in 2011. Its purpose was to try to collect revenues from the informal sector at a time that Zimbabwe's struggling economy was shedding wage-paying jobs.
To Sibanda, the issue amounts to an unclear attempt by the government to take what little money she and other informal vendors make.
"There is no money," she said, "and to be honest, we don't understand the tax issues because there is no profit in this business."
By 2024, Zimbabwe's informal economy accounted for roughly 60% of gross domestic product (GDP), one of the largest in the world, and employed over 76% of the workforce, according to the African Development Bank.
Collecting presumptive taxes has had its challenges because of poor enforcement and corruption, including among officials meant to enforce it.
In 2022, for example, tax official in Gweru Taxes Liaison section, Mercy Dzuke (48) was arrested after trying to extort US $500 from a doctor's surgery in Gweru for failing to submit income tax and PAYE tax on time.
The International Monetary Fund, the Washington-based financial institution, said it had not conducted a detailed study on the impact of the presumptive tax in Zimbabwe. However, it noted that taxes on gross receipts, like presumptive taxes, can be inefficient because they do not account for individual profitability.
"We generally caution countries that the application of taxes to gross receipts – as presumptive or turnover taxes do – is not a very efficient way to raise revenue, particularly if applied at high rates," IMF spokeswoman Julie Ziegler told CITE.
"These simplified taxes do not factor in the businesses situation of each taxpayer and so can penalize loss making businesses," she said, adding that in Zimbabwe, the presumptive taxes contributes less than 0.2 percent of the total tax collection.
At the same time, Ziegler acknowledged that presumptive taxes were a way to encourage a degree of formalization and growth.
"This gradual process can ultimately help transition them to non-presumptive taxes once they meet a specified threshold," she said. "It is essential for revenue administration to effectively monitor presumptive taxpayers to ensure that only those who qualify remain within this category," she added.
Ziegler said tax authorities should educate taxpayers and work with business groups to ensure they understand their obligations.
Zimbabwe economic expert, Favourate Mpofu, said the problem was that presumptive taxes relied on a government estimate of income and not on actual income.
"This coupled with the debt has seen government resorting to over taxation of individuals and corporates," she said in an interview. The government has tried to make up the revenue from the informal sector by aggressively imposing the presumptive tax, she added.
Zimbabwe's public debt and arrears stood at US$21.1 billion in September 2024, according to the African Development Bank.
Mpofu warned that this approach risked disproportionately burdening small operators, like Sibanda's salon, who are already struggling in a difficult economic environment.
"The depressed economic activity also worsens the challenge of informal operators such as hair salons where disposable incomes are very low and people generally prioritize basic needs," said Mpofu.
In particular, women and young people make up the majority of the informal sector. Economists warn that squeezing the informal sector, where the vast majority of poor make their living, could worsen poverty levels in Zimbabwe and stifle the growth of women-led enterprises.
"Taxation of the informal sector is a complex matter that needs to balance the revenue mobilization objective and not cripple economic activity as this sector offers employment, subsistence income to many families for survival, education and health," said Mpofu.
Ruvimbo Chidakwa, a program officer for Vendors Initiative for Social and Economic Transformation (VISET), which promotes workers in the informal economy across Africa, said the presumptive tax was harmful to women-owned businesses.
"It does not take away the fact that the tax is unfair to the female population and is also part and parcel of the systems and structures that should be working for them, but is working against them," said Chidakwa, who works among women vendors in Harare.
Chidakwa said although presumptive tax can help with the process of eventually registering and legitimizing a business, until then there were no safety nets in place to protect women traders from disasters, like the fire in Mbare Musika in Harare, which left thousands of women vendors stranded with no insurance or access to loans.
Women groups argue that instead of taxing informal traders to raise revenue, the government should tackle losses through corruption, money laundering and tax evasion by large corporations.
The Zimbabwe Coalition on Debt and Development, a social and economic justice coalition fighting corruption in Zimbabwe, estimated the country lost over $32 billion through illicit financial flows between 2000 and 2020.
Sibonele Ngwenya, the Bulawayo chair of the Women Coalition of Zimbabwe, said financial waste by the government was especially damaging to women, who mainly operate in the informal economy and rely on hospitals and schools for their children's needs.
"At the end of the day, women won't develop because their business is not growing," she said, "They can never grow in such an environment … they will remain in the informal sector" she said.
This story was written as part of Wealth of Nations, a pan-African media skills development programme supported by the Thomson Reuters Foundation as part of its global work aiming to strengthen free, fair and informed societies. Any financial assistance or support provided to the journalist has no editorial influence. The content of this article belongs solely to the author and is not endorsed by or associated with the Thomson Reuters Foundation, Thomson Reuters, Reuters, nor any other affiliates. More information at www.wealth-of-nations.org
Like many women in the informal sector, Sibanda is juggling motherhood with trying to provide for her family. The one-room salon she shares with a cell phone vendor has chairs rented by other hairdressers and a large bench for customers waiting their turn. There is no paperwork, no cash registers, no regulation.
Zimbabwe's government has struggled to force the country's millions of vendors and traders in the informal economy - where most Zimbabweans are now employed and make their living - to pay corporate and personal income taxes based on the money they are making.
Much of the Zimbabwean economy operates informally with vendors selling their wares and services on the sides of main roads or from their homes, rather than through formal, registered businesses.
Finance Minister Mthuli Ncube has proposed that starting in 2025 larger vendors in the informal sector - such as car dealers, hardware vendors, grocers, home ware sellers, clothes makers and lodges - must register with the Zimbabwe Revenue Authority, or ZIMRA, transact with sales machines, and maintain records of all transactions.
However, informal vendors such as Sibanda and groups advocating for women – who mainly make up the informal sector – argue that it is unfair to seek revenue from a miniscule source compared to the vastly greater sums lost through corruption in the broader economy.
Hair salons and other small vendors pay a presumptive tax - a simplified tax - that was introduced by the government in 2005, and expanded in 2011. Its purpose was to try to collect revenues from the informal sector at a time that Zimbabwe's struggling economy was shedding wage-paying jobs.
To Sibanda, the issue amounts to an unclear attempt by the government to take what little money she and other informal vendors make.
"There is no money," she said, "and to be honest, we don't understand the tax issues because there is no profit in this business."
By 2024, Zimbabwe's informal economy accounted for roughly 60% of gross domestic product (GDP), one of the largest in the world, and employed over 76% of the workforce, according to the African Development Bank.
Collecting presumptive taxes has had its challenges because of poor enforcement and corruption, including among officials meant to enforce it.
In 2022, for example, tax official in Gweru Taxes Liaison section, Mercy Dzuke (48) was arrested after trying to extort US $500 from a doctor's surgery in Gweru for failing to submit income tax and PAYE tax on time.
The International Monetary Fund, the Washington-based financial institution, said it had not conducted a detailed study on the impact of the presumptive tax in Zimbabwe. However, it noted that taxes on gross receipts, like presumptive taxes, can be inefficient because they do not account for individual profitability.
"We generally caution countries that the application of taxes to gross receipts – as presumptive or turnover taxes do – is not a very efficient way to raise revenue, particularly if applied at high rates," IMF spokeswoman Julie Ziegler told CITE.
"These simplified taxes do not factor in the businesses situation of each taxpayer and so can penalize loss making businesses," she said, adding that in Zimbabwe, the presumptive taxes contributes less than 0.2 percent of the total tax collection.
At the same time, Ziegler acknowledged that presumptive taxes were a way to encourage a degree of formalization and growth.
"This gradual process can ultimately help transition them to non-presumptive taxes once they meet a specified threshold," she said. "It is essential for revenue administration to effectively monitor presumptive taxpayers to ensure that only those who qualify remain within this category," she added.
Ziegler said tax authorities should educate taxpayers and work with business groups to ensure they understand their obligations.
Zimbabwe economic expert, Favourate Mpofu, said the problem was that presumptive taxes relied on a government estimate of income and not on actual income.
"This coupled with the debt has seen government resorting to over taxation of individuals and corporates," she said in an interview. The government has tried to make up the revenue from the informal sector by aggressively imposing the presumptive tax, she added.
Zimbabwe's public debt and arrears stood at US$21.1 billion in September 2024, according to the African Development Bank.
Mpofu warned that this approach risked disproportionately burdening small operators, like Sibanda's salon, who are already struggling in a difficult economic environment.
"The depressed economic activity also worsens the challenge of informal operators such as hair salons where disposable incomes are very low and people generally prioritize basic needs," said Mpofu.
In particular, women and young people make up the majority of the informal sector. Economists warn that squeezing the informal sector, where the vast majority of poor make their living, could worsen poverty levels in Zimbabwe and stifle the growth of women-led enterprises.
"Taxation of the informal sector is a complex matter that needs to balance the revenue mobilization objective and not cripple economic activity as this sector offers employment, subsistence income to many families for survival, education and health," said Mpofu.
Ruvimbo Chidakwa, a program officer for Vendors Initiative for Social and Economic Transformation (VISET), which promotes workers in the informal economy across Africa, said the presumptive tax was harmful to women-owned businesses.
"It does not take away the fact that the tax is unfair to the female population and is also part and parcel of the systems and structures that should be working for them, but is working against them," said Chidakwa, who works among women vendors in Harare.
Chidakwa said although presumptive tax can help with the process of eventually registering and legitimizing a business, until then there were no safety nets in place to protect women traders from disasters, like the fire in Mbare Musika in Harare, which left thousands of women vendors stranded with no insurance or access to loans.
Women groups argue that instead of taxing informal traders to raise revenue, the government should tackle losses through corruption, money laundering and tax evasion by large corporations.
The Zimbabwe Coalition on Debt and Development, a social and economic justice coalition fighting corruption in Zimbabwe, estimated the country lost over $32 billion through illicit financial flows between 2000 and 2020.
Sibonele Ngwenya, the Bulawayo chair of the Women Coalition of Zimbabwe, said financial waste by the government was especially damaging to women, who mainly operate in the informal economy and rely on hospitals and schools for their children's needs.
"At the end of the day, women won't develop because their business is not growing," she said, "They can never grow in such an environment … they will remain in the informal sector" she said.
This story was written as part of Wealth of Nations, a pan-African media skills development programme supported by the Thomson Reuters Foundation as part of its global work aiming to strengthen free, fair and informed societies. Any financial assistance or support provided to the journalist has no editorial influence. The content of this article belongs solely to the author and is not endorsed by or associated with the Thomson Reuters Foundation, Thomson Reuters, Reuters, nor any other affiliates. More information at www.wealth-of-nations.org
Source - wealth-of-nations
