Online Reporter
During the 2025 Budget presentation last year, Minister of Finance, Economic Development and Investment Promotion Prof Mthuli Ncube proposed a set of legal changes that should bring large sections of the informal sector into the formal economy.
These were approved by Parliament and President Mnangagwa at the end of the year in the Finance Act implementing the Budget.
Taxation proposals now in theory make it imperative for many informal businesses to register for tax, unless they wish to pay huge presumptive taxes, and attack smuggling by listing a range of goods commonly sold informally that are now presumed to be smuggled unless the paperwork proving otherwise is produced.
This was backed this week by the Minister stating that using the new legal powers and existing legal measures, a practical implementation programme is about to be wheeled out to force informal sector traders to sort themselves out.
Clearly they need to register for tax, get themselves licensed by their local authority, follow the labour law under both the statute and the detailed provisions of the relevant national employment council, and presumably make them collect PAYE for staff wages and pay NSSA contributions.
They will also need to have documentation readily available for checking to prove they are not selling smuggled goods.
The pressure to get the informal traders and tuck-shop owners to regularise their businesses has been growing.
Existing taxpayers are keen to have everyone who should be paying taxes to be shouldering their share, even if it is a tiny share, and formal sector retailers want a level playing field for business with everyone under the same rules and paying the same taxes.
Formal sector retailers agree they must compete. But they note that it is not fair competition when a small business has not paid customs duty on their imported goods, does not pay income tax, is not licensed by the local authority, pays the person behind the till far less than laid down by law, who might agree to lower wages because they do not pay tax either, and does not have to have the safety and other equipment, such as a fire extinguisher, on the premises.
The Minister agrees, and in any case he wants the extra taxation that should be paid and is not being paid so he can pay for the services that Zimbabweans demand and invest in the infrastructure that a growing and more secure economy requires.
These tuckshops and other small business, by ignoring their tax obligations or deliberating buying smuggled goods, are benefiting from the Government services and security paid for by formal businesses and their taxed staff, but contributing zero to the cost. They are freeloaders.
The second phase of the National Development Strategy, the phase that starts next year and takes Zimbabwe to that upper-middle income stage of the Vision 2030 target, is now being worked out and debated and finalised so that everything is in place in time.
We would press that this strategy needs to have a section that not just encourages business and start-ups, but also makes sure that all business is formal in the sense of following the short list of required rules.
Very small businesses are common in developed countries, with the equivalent of tuckshops called convenience stores or “mom and pop” stores for example, but they are known to the licensing authority and pay their tiny share of taxes.
They compete against the big companies because they are usually small family businesses able to be open at convenient times, offer close personal service, and are very responsive to their customers and their customer needs. They are needed, and they can flourish, legally.
They are also inspected, so they do not poison or harm their customers by ignoring rational health or safety rules, do not use child labour, and if they hire people outside say the immediate family in family business, then follow the labour law and regulations.
No one wants to kill the small businesses that are flourishing in the informal sector. In fact we want them to grow and play their part in developing Zimbabwe, but they cannot freeload.
While the correct taxes that they will be required to pay are small for each business, the total could be large when those thousands of little payments are added up, and we need that extra money.
We are already hearing that Zimbabwe will probably have to fill, sooner than expected, gaps in the funding of health services supported up to now by the United States. And other services, such as schools and universities, always need larger budgets.
Prof Ncube could even look at ring fencing some of this extra tax money for those special services such as health and education, that every tuckshop owner and their family use, to entice the changeover for these small business owners, as well as meet his growing requirements to make sure these services can cope with external funding cuts.
He could also allocate some of the tax they will be paying to upgrading the special banks set up to support small businesses, so again the traders get their money’s worth when they pay up.
Most of us who pay taxes already understand the relationship between what we pay and what we get, but we do not mind the new taxpayers being shown just how immediate this relationship can be.
The new Finance Act contains some remarkably steep presumptive taxes for a swathe of informal businesses, assuming for example that a tuckshop might be making profits of US$12 000 a month, which is exceptionally unlikely.
The tuckshop owner simply needs to register with Zimra, keep some real if simplified accounts, and pay the far smaller sums likely to be due to miss this huge tax at the end of March.
But for those incentives to work there will be need to bring home, through Zimra inspections and visits, that there is no longer any possibility of escaping tax. The small businesses need to register and pay their dues, or be hit by huge payments that will probably see them having to close in bankruptcy.
The law is now there, so we are pleased to hear Prof Ncube is now finalising the practical measures needed to enforce his new laws and so get large swathes of the informal sector on side and acting responsibly.
