Retailers group proposes three tier tax system for small businesses

A grouping of small-scale retailers, the Confederation of Zimbabwe Retailers (CZR), has proposed a three-tier presumptive tax system for small businesses to address the growing level of informalisation in the economy.

This, the grouping argues will also offer a fair and equitable tax regime for small businesses contributing to national fiscal revenue.

The proposal was submitted to Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube recently and it highlights the urgent need for a structured taxation approach that categorises small businesses into distinct tiers based on factors such as business size, turnover and number of employees.

By harnessing the growing informal sector, CZR believes the country can strategically integrate MSMEs into Zimbabwe’s broader economic development plans.

The CZR proposal comes as the Government financial accounts of August show that Treasury managed to collect only ZiG$35 million in presumptive tax revenue between January and August this year, against a target of about ZiG1,2 billion.

According to the Zimbabwe National Chamber of Commerce’s State of Industry and Commerce survey of 2023, a significant 71 percent of Zimbabwean businesses operate informally, placing an undue tax burden on the few formalised businesses.

The first tier, covering MSMEs with an annual turnover of up to US$15 000, includes businesses like small tuckshops and market stalls. These businesses, characterised by smaller daily sales and limited operational capacity, would be subject to an annual presumptive tax of US$500.

The second tier encompasses medium-scale MSMEs with annual turnovers ranging from US$15 000 to US$50 000.

The businesses, including large tuckshops and small stores, have higher daily sales, employ more staff and operate at a larger scale. To reflect their increased capacity, they would be subject to an annual presumptive tax of US$1 500.

The third tier encompasses large-scale MSMEs with annual turnovers ranging from US$50 000 to US$100 000.

The businesses, which may include larger tuckshops and partitioned mall stores, operate at a significant scale, with bigger premises, more employees and higher sales. To reflect their increased capacity, they will be subject to an annual presumptive tax of US$3 000.

The proposed system is adapted from a successful model implemented in Tanzania, which brought over 40 percent of informal businesses into the tax net, according to the CZR. The initiative, it says, significantly contributed to Tanzania’s revenue and stimulated formalised economic growth.

“This three-tier presumptive tax structure promotes fairness and sustainability, ensuring MSMEs contribute to the economy in a manner that aligns with their financial capacity while simplifying tax compliance,” said CRZ.-ebsinessweekl