Mainstreaming informal sector to widen tax base: AfDB

05 Jun, 2016 - 00:06 0 Views
Mainstreaming informal sector to widen tax base: AfDB Sunday Mail

The Sunday Mail

Enacy Mapakame
Business Reporter
THE African Development Bank (AfDB) believes that reforms to integrate the informal sector into the mainstream economy will help to broaden the country’s tax base and boost revenue collections.
Statistics from the Zimbabwe Revenue Authority (Zimra) show that net revenue collections dropped 3 percent to $3,5 billion last year from $3,6 billion in 2014.
While the formal economy has shrinked, the informal sector has grown.
As a result, figures from Zimbabwe National Statistics Agency (ZimStats) now show that the informal sector currently accounts for more than 80 percent of employment.
“The rising informality reflects the problem of under-employment, thereby implying that the country has abundant labour that is not being productively utilised,” said AfDB in its latest economic outlook report on Zimbabwe.
“The rising informality present challenges for domestic resource mobilisation. It is vital to implement reforms that facilitate the graduation of the informal sector into formal enterprises Zimbabwe so as to broaden the tax base.
“Informality discourages investment and weakens the overall competitiveness of the economy, because a number of informal enterprises are stuck in a low productivity trap.”
Informal enterprises such as beauty salons and bus operators are obliged to pay presumptive tax, a flat fee based on estimates on future earnings that is paid every quarter.
However, tax evasion is rife.
Zimra has also been struggling to make informal sector players compliant, most of whom are itinerant.
According to the AfDB, being outside the regulatory framework means the informal sector may chose to be less productive than their counterparts in the formal sector.
Further, the sector may be locked out of markets, access to finance, technology and other resources that enhance their competitiveness.
“In order to sustainably address the issue of informality, it requires a combination of strong incentives for compliance and stiffer penalties for non-compliance,” it said.
Zimra has expressed dismay over the reluctance by businesses in the informal industry to pay taxes.
In a recent interview, Zimra board secretary and director legal and corporate services, Ms Florence Jambwa said compliance levels have not been “very impressive over the years mainly due to lack of company record keeping by most of them and also lack of fixed places of business operations”.
Tapping into the informal sector would boost the country’s revenue base at a time when other key sectors of the economy are struggling and narrowing their contribution to the fiscus.
The role of the manufacturing sector, for instance, has been declining, with capacity utilisation falling to 34,3 percent in 2015 from 37,1 percent in 2014, according to the Confederation of Zimbabwe Industries manufacturing survey report.
This implies that 65 percent of industry capacity was lying idle in 2015 as more firms grappled with power and water shortages, antiquated machinery and lack of capital to enhance operations.
Agricultural production has also declined by an estimated 3,6 percent in 2015 on reduced output of major crops like maize, tobacco and cotton.

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