‘Capacitate informal sector before demanding tax’

The Ministry of Finance and Economic Development should first provide support mechanisms such as education, funding and market linkages before demanding to collect Locational Tax from micro-enterprises, market experts argue.

Speaking at an online discussion hosted by Business Weekly on whether taxing the informal sector impedes or supports economic growth, Investor Saint founder, Kudzai Mubaiwa, said Government needs to put in place incentives and capacitate micro-enterprises before asking players to pay tax.

She said while the principle of bringing everyone into the tax net is noble, the timing is not right as micro enterprises still need to be educated and motivated on how taxation works.

She said Government must look for simple ways of building a tax mechanism that allows anyone to participate and graduate into the system.

“The principle is fine, but let’s be very intentional, let’s be deliberate and appreciate where we are and understand that informal sector players are a shared responsibility until they become formalised businesses,” she argued.

Mubaiwa argued that Government must first invest in micro enterprises and help them to graduate into bigger businesses and not just traders before taxing them.

SME Association of Zimbabwe President Farai Mutambanengwe, said as much as everyone must pay tax, taxing the informal sector is likely to impede growth.

He said given the state of most players in the informal sector, focus should be on how to graduate them into the formal sector.

He said there is need to simplify tax issues as well as comprehensive research on how much players in that sector are earning and can afford to pay as tax.

However, tax advisor, Trust Chiroora, said several benefits accrue to businesses that are tax compliant.

He said tax clearance certificates offer opportunities for micro-enterprises to deal with already established businesses including Government.

“Formalisation enables one to get business. Most tender requirements require provision of valid tax clearance certificates,” Chiroora said.

He said most business players only deal with enterprises that hold valid tax compliance. If you are not tax compliant you get shunned in the business community.

“By being formalised and being tax compliant one would be able to enjoy business without any tax limitations,” Chiroora said.

The recommendations come as Finance and Economic Development Minister Professor Mthuli Ncube announced plans to introduce a presumptive tax (Locational Tax).

Micro and Small Enterprises and informal operators, operating from places such as Gulf Complex and Kwame Mall, will now be required to pay a presumptive tax of an equivalent of US$30 per unit per month.

Hairdressers, restaurants, bottle store operators will now also pay a presumptive tax of $2 500 and $10 000 respectively.

Landlords will be responsible for the collection of the above taxes, which take effect from January 1, 2021.

Failure to collect and remit the tax will be subject to a penalty equivalent to the amount of tax payable and interest.

Further, to tap into this potential, Zimbabwe Revenue Authority will establish a Specialised Unit that focuses on MSMEs during the first quarter of 2021.

However, in line with the recommendation that micro and small enterprises require support, collected revenues will be ring-fenced and be used to finance construction of MSME operating infrastructure, in partnership with the Infrastructure Development Bank of Zimbabwe.

“Development of this infrastructure will ensure that MSMEs operate in designated places, accessible to tax administrators, thereby enhancing contribution to the Fiscus and reducing health hazards,” reads part of the Budget Statement.-ebusinessweekly.o.zw