Formalising the informal sector

Informal businesses are now the leading employer
Informal businesses are now the leading employer

Edwin Mwase
With the continued closure and downscaling of several formal sector industries which has been attributed to the general distress and recapitalisation problems besetting local industries, many people are finding themselves out of employment. However, analysts argue that the general discomfort hitting the formal business sector has culminated in the obscene statistics of unemployment with economists pegging unemployment at 70 percent while the ZimStat Census 2012 National report pegged it at 11 percent.

The discomfort, the experts have noted, has extended to upstream and downstream sectors which has resulted in the shrinkage of revenue collection of significant national institutions such as the Zimbabwe Revenue Authority (ZIMRA).

Analysts note the verity of importance is that the said facts of high unemployment are entrenched on statistics being obtained from the formal employment sector.

This has in turn relegated viable segments within the informal sector to the dustbin. The informal sector is arguably employing the bulk of the country’s productive population.

A Finscope Micro and Small Medium Enterprises (MSMEs) survey carried out in 2012 indicated that the informal sector has managed to create a total of 5,7million jobs in the country.

The survey also indicated that there are close to 2,8 million small business owners and 3,5 million small businesses around the country.
However, apart from these impressive statistics, this sector (which is touted as the future of the local industry) is failing to significantly remit meaningful contributions to the national fiscus.

It is in that context that the Ministry of Small and Medium Enterprises and Co-operative Development has come up with a policy document that will ensure that the informal sector positively contributes to the national coffers.

Presenting the report before Parliament, Minister of Small and Medium Enterprises and Co-operative Development Cde Sithembiso Nyoni said her ministry intended to formalise the informal sector which she argued had close to US$ 7,4 billion circulating within its boundaries.

Among a raft of proposals from the policy document were the plans to register entities in the informal sector and classify them as private limited companies, co-operatives, sole traders or as partnerships.

Other measures include compulsory registration with tax authorities, acquisition of local licences, registration with NSSA and the Manpower Development Fund.

According to the document, the formalisation of the sector is meant to ensure that the sector contributes towards taxes.
As read out by Cde Sithembiso Nyoni, the Finscope Report depicts that 85 percent of MSMEs are informal and almost US$7,4 billion is circulating in this sector.

She said following the introduction of Zim-Asset which reckons the pivotal role played by MSMEs, a deliberate action that brings on board their operations was imperative so as to reckon the significance of contributions to the fiscus.

“Just imagine that if 2,8 million people were to pay US$1 per month that would greatly contribute to our fiscus. The informal sector comprises of the unregistered and unregulated enterprises whose owners and operators choose to avoid registration and thereby taxation,” said the ministerial report released by Cde Nyoni.

Economist Mr Brains Muchemwa said it was not arguable that the local economy was getting informal.
“It is true that the economy is getting informal considering the widespread bankruptcy among the big corporates of yesteryear,” he said.
“The thinking that the informal sector is slowly taking up and filling the big shoes of the big corporates is duly correct when it comes to providing goods and services, but the same cannot be said about the informal sector tax contributions to the fiscus,” he argued.

Mr Muchemwa said the Government was losing a lot of revenue as a result of this.
“It becomes imperative for the Government to craft measures that not only benefit the taxing authorities (ZIMRA) but also the taxpaying public,” he said.

Many analysts have often associated the informal sector with small and micro-businesses such as vending, while negating other informal sector encompassments that are thriving.

They argue that this is a clear indication that the country’s future employment and tax revenue base lies in the informal sector.
However, they argue that it is the failure by the taxing authorities to harness revenue from the informal sector and the lack of proper monitoring policy that has resulted in the revenue leakages in the informal sector.

Another economist, Mr Peter Rwafa, said the issue of the formalisation of the informal sector centred on the simplification of the compliance and registration systems so that this becomes less burdensome to the new taxpayers.
Mr Rwafa said the current regime makes it more difficult to attract new taxpayers into the basket.

However, the Association of Small and Medium Enterprises Development chairman, Mr Prince Dube, bemoaned the lack of recognition by the Government as hampering the development and subsequent tax benefits from the sector.

“Besides the ministry alluding to the fact that close to US$8 billion was circulating in the sector, Government has not done much to promote the development of the sector,” he said.

“The laws dealing with the small enterprises are still archaic, the licensing fees exorbitant and negating the thriving informal sector.”
He also slammed the national budget allocation of the ministry and argued that the budget was too little to spearhead the formalisation of the sector.

In Nigeria, besides it being an oil economy, the informal sector has played a significant role which has since resulted in it toppling South Africa to become the largest economy in Africa.

Its informal sector contributes significantly to national economy in terms of output and employment.
The Nollywood film industry has become a big player on the world film industry.

Apart from complying with business rules, laws and regulations, the informal sector can also access benefits which they have previously missed.

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