The Sunday Mail
Plans to tax micro, small and medium enterprises (MSMEs) should be implemented methodically in the wake of revelations that individual businesses in the sector do not rake in as much as previously thought, experts have said. A survey conducted by consultancy firm FinScope in 2012 revealed that around 65 percent of the businesses grossed turnover amounting to $7,4 billion in that year, a figure that represents over 60 percent of the country’s national Gross Domestic Product.
It has now emerged that while this cumulative turnover is clearly staggering, 40 percent of enterprises earn not more than US$200 per month each.
It has also been established that a further 11 percent do not have a regular income stream.
Take, for instance, some business people earn amounts that fluctuate between $1 and $2 per day.
When the FinScope findings were published, most discourse centred on the potential revenue that Government could derive from the sector through taxes.
Much of the optimism came on the back of the liquidity constraints in the country with some anticipating that an organised MSME sector would ultimately pump previously unbanked money into the formal system.
Key stakeholders are now advocating methodical strategies in organising and eventually taxing the sector, which accounts for over 5,7 million entrepreneurs.
Of this figure, 85 percent are unregistered while only 14 percent of business owners are banked. The Small and Medium Enterprises’ Association of Zimbabwe (SMEAZ), a body that comprises over 5 000 players in the sector, believes introducing the proposed taxes is akin to “taxing the poor”.
Association deputy chairperson Mr Farai Mutambanengwe said: “There seems to be confusion that the micro enterprise sector in its current form can be harnessed to contribute directly to Government’s revenue basket.
“Tax works on a minimum revenue threshold and most of the businesses in this MSME sector do not meet that threshold.
“But as it stands, most, if not all, enterprises operating in the ‘medium’ bracket are tax-compliant.
“This is so because these enterprises act as suppliers to bigger corporations and such corporations do not do business with enterprises that do not have tax clearance.
“These, however, constitute a minute percentage of the enterprises in the MSME sector.”
Dr Godfrey Kanyenze, the director of the Labour and Economic Development Research Institute of Zimbabwe (Ledriz), said the authorities face a daunting task in organising and taxing the sector.
“Taxes must be set at a comparative level based on benefits accrued,” he said.
“The challenge, according to the FinScope report, is that most MSMEs record low profit margins coupled with little capital and most hardly make any savings.
“It is quite a challenge for Government to just plunge into an unorganised sector.
“Government cannot force the business to be tax-compliant when the owners know very little about tax.
“The business owners must first be taught about the benefits of paying tax and formalisation.
“Benefits such as easy access to loans from micro-finance banks, markets and assistance from the Government can accrue from registering and paying taxes.”
