Small traders find new tricks to dribble Zimra

SMALL retail traders have devised cunning ways of evading paying taxes after authorities had reportedly succeeded in getting several such operators in the sector to acquire fiscalised devices to enhance transparency in tax collection.

This comes amid revelations the majority of the operators now keep their fiscal devices off the internet network to avoid creating a trail of records of their transactions, which can help determine their accurate tax liability.

Fiscalisation refers to the use of approved fiscal devices to record taxable sales transactions and other tax information on the read-only fiscal memory at the time of sale for use by the Zimbabwe Revenue Authority (Zimra) in Value Added Tax (VAT) administration.

The fiscalised gadget records information on read-only memory, meaning that once recorded, it cannot be altered. Registered operators who fiscalise must also ensure that the fiscal devices are interfaced with Zimra servers to transmit information to the revenue collector.

Despite being the most preferred by manufacturers for the supply and distribution of products, small and informal traders rarely pay their tax dues. At one point the tax authorities conducted a compliance blitz in areas around Harare and other major commercial centres around the country over tax evasion.

Sources acknowledged that while many small traders, who move millions of US dollars worth of business in US dollar cash every day, but pay little to virtually no tax to the Zimbabwe Revenue Authority (Zimra), had found new cunning ways to avoid paying the correct or any taxes at all to the authorities.

The traders simply switch off the fiscalised machines for the better part of trading periods. For a long period until recently, small and informal traders resisted demands by Zimra to acquire fiscalised devices, as these would expose their flagrant breaches of tax regulations.

When caught by revenue authority officers breaching the law, the traders use the scapegoat of lack of internet connectivity or claim they cannot afford to stay connected all the time given the high cost of internet data in the country.

For breaching tax laws, the traders are sometimes fined. While the penalties may be a bit punitive, the potential tax revenue the authorities could collect each month or quarterly may be higher.

However, stakeholders in the informal trading sector argue that the tax framework applied to this segment of the economy was complicated and unsustainable, pointing out that authorities were currently being lobbied to consider adjustments that could improve compliance and contribution to the fiscus from the traders.

“What these traders do is that they just do not keep their fiscalised devices connected to the internet.

When the Zimra guys come they simply tell them that they have no internet connection. The devices require internet connectivity to remain online. Even though they can buy data, they tell the Zimra officers that data is very expensive in Zimbabwe and they cannot afford to buy it and stay online all the time.

“When that happens Zimra hits them with penalties; it’s a lot of money yes, but the traders feel it’s much better to pay the taxes than to pay the correct amount of tax from the mostly US dollar cash transactions they do.

“They want cash because the manufacturers demand US dollar cash and do not accept ZiG payments,” said a well-placed source who declined to be named.

According to recent data released by the Zimbabwe National Chamber of Commerce, Zimbabwe’s informal economy is estimated to be 64,1 percent of the entire gross domestic product, which represents approximately $42 billion at the GDP purchasing power parity (PPP) level.

In 2022, the International Monetary Fund estimated that almost 5,2 million people trade in the informal economy in Zimbabwe, a sizeable of number of whom are women.

Efforts to get a comment from Zimra were not successful until the time of going to print.

Commenting on the issue, Confederation of Zimbabwe Retailers president Denford Mutashu said most of the small or informal traders, who, however, move significant volumes of goods from manufacturers paid for in cash, had since acquired fiscalised devices as per legal requirements, albeit with several issues against the current tax model.

He said the traders were gradually complying with tax some of taxation requirements, including value added tax (VAT), but had serious reservations on other tax obligations, which they argued they could not meet and remain viable.

He said the operators in this segment of the economy, from the meetings held with authorities including the Ministry of Industry and Commerce, suggested the development of a sustainable blanket presumptive tax rate for the sector, which is payable once either monthly or quarterly.

“We have engaged them, and most of them have become members of the Confederation of Zimbabwe Retailers. We then started working with them towards conforming with all the statutory and regulatory requirements in our quest to formalise them.

“We have engaged with Zimra. Zimra has been quite helpful. The Ministry of Finance, Economic Development and Investment Promotion has also been quite engaging. The banks have also been quite engaging.

“We applaud the whole the Government approach that has been helpful,” he said.

In the discussions with authorities, Mutashu said the small and informal traders narrated to the authorities their challenges, expectations and requests in line with the fiscalisation requirements.

Some of the engagements included participation of senior officials from Treasury(Deputy Minister David Mnangagwa), Zimra (Commissioner General Susan Chinaasa) and the Ministry of Industry and Commerce (Minister Mangaliso Ndhlovu).

“With regards to fiscalisation, we have moved a notch higher and registered all of them or somewhere there, I think we are on 90 percent for VAT registration,” Mutashu said, stressing this was made easier after Zimra created a special desk for the small and informal traders to register.

However, Mutashu said the traders requested exemption in terms of formalisation of other tax obligations.

“The request by 90 percent of these so called informal traders is that Government comes up with a presumptive taxation model for them. They are not quite acquainted with fiscalisation journey because it comes with too many costs and gadgets. They related that the move from the average of 300 to the current average of US$1000 (presumptive tax) was not welcome. They are saying for an informal trader US$300 let alone US$1000 is a lot of money that they can plow into stock procurement,” he said.

“So, it is their fervent request that they be allowed to operate under an entirely different taxation model from the fiscalisation model of 15 percent tax; a one size fits all to a more; to them, proactive as well as affordable and accommodating taxation model where they can pay at once or quarterly a fixed amount, which the Government is not getting anyway,” Mutashu said.

He said the traders could pay an estimated US$2,5 million in collective taxes monthly if the Government developed a more friendly taxation model for informal and or small traders, who manufacturers now prefer to supply given they pay US dollar cash for the supplies they get compared to formal traders, who trade largely in ZiG and require terms before settling their invoices.

Mutashu noted devising an appropriate model for taxing small and informal traders was critical to tap into the potentially huge tax revenue pool of this sector at a time when several formal traders had closed shop across the country, amid the growing competition from the more convenient and cheaper tuckshops.

These include Food World, which closed its Mbuya Nehanda Branch and the Head Office at Jason Moyo and Angwa streets.

Meikles Limited-owned Barbours has also closed most of its outlets, with the space it left taken up by informal and small traders. Muhammad Mussa Wholesalers has reportedly also been down-scaling and contemplating leasing its space to the booming tuckshops.

“The tuckshops have become a huge and significant competition to the formal players. Formal players who have been largely contributing to more to the fiscus and at the same time being exposed to all the regulatory requirements from radio licensing to Zimra taxes; local authorities would come from the other end..”

Given the myriad of challenges that constrain their operations, including access to foreign currency, exchange rate volatility (now somehow stabilised), and inconveniences to customers such as the high cost of parking space around large formal traders, Mutashu said several players in the formal retail sector were deciding to close shop, making it urgent to come up with policies that favour small traders to thrive.

He pointed out that challenges facing the retail sector could limit its expected contribution to the economy.

Mutashu said although the sector was expected to account for upwards of 22 percent, however, judging by the current scenario, this could go down to 20 percent.

This is partly due to challenges afflicting formal traders, including the decision by the central bank to convert outstanding local currency transferred to the central bank for auction forex, into negotiable certificates of deposits.

Although small traders claim they deal exclusively in local currency because suppliers and producers insist on the same, Confederation of Zimbabwe Industries president Farai Matsheza said their members accept all approved currencies.

He, however, acknowledged discussions persisted with authorities on improving access to the interbank market forex for key imports, including raw materials.-ebusinessweekly