The Zimbabwe Revenue Authority (Zimra) plans to cut taxes for small to medium enterprises (SMEs) as part of efforts to help them formalise their operations through compliance.
A working paper titled “Shadow economies around the world: What did we learn over the last 20 years?” — published by the International Monetary Fund (IMF) on January 24 this year — claims that Zimbabwe’s informal sector, at 60 percent of the economy, is the second-largest in the world after Bolivia.
Similarly, a Finscope study published in 2012 estimated that the country’s informal economy could be worth more than $7 billion.
However, informalisation comes at a cost as most of the enterprises are not contributing to the fiscus.
Zimra says although it has 300 000 companies in its books, the figure could be higher if SMEs play ball.
Speaking to The Sunday Mail last week, Zimra Commissioner-General Mrs Faith Mazani said tax compliance stands at just over 25 percent for registered businesses.
“Our tax is perceived to be very high because it is being paid by a few people. In our register, we have between 300 000 tax payers. But even for these, the compliance is low, at about 25 to 30 percent.
‘‘Tax is being paid by a few people and we need to make the necessary steps to implement reforms and reduce the tax where there is need and get those that are in the informal sector to pay tax,” said Comm-Gen Mazani.
The strategy on reducing tax for small businesses, she said, will be based on revenues.
“What other jurisdictions in other countries do is they have a turnover tax. Like VAT (Value Added Tax) requires registration at a particular level and below that level, all tax payers are on a turnover tax. What we do is calculate a reasonable tax and say instead of bringing in books or records, you can just give us 2 or 3 percent, which you pay from turnover.
“This is something that we need to discuss with Government, engage the small business and put in place modalities of how it is collected.
“In East Africa, they have fiscal gadgets for small business so that when they do their sales, they can bring in tax at a small percentage.”
Although fiscal gadgets, which are a foolproof system that relays information to the taxman in real time, are currently being used locally, their use is limited by the law to include companies that fall in categories A, B, C and D.
Categories A and B include companies that submit returns after every two months, while categories D cover companies that submit returns on a seasonal basis.
Companies in category C are those with an annual turnover of over $240 000.
In addition to submitting its proposals to Government, Zimra will also embark on an outreach campaign to educate small businesses on tax matters.
“We want to strengthen our data bases so that we can get information from councils, social security and estimate the numbers. Compliance for small businesses’ tends to be low because of lack of information.”
“We can’t give specific figures of how many businesses are non-compliant among the small and medium-scale players. But we will look at their entire contribution in terms of the economy. They are part of the economy that we do not understand, so a study has to be carried out.
“We also have to understand their challenges and look at issues that touch on their profitability such as transport costs, rentals and so forth, we reduce the tax and then we calculate at what rate.
“We have to work these figures, but these have to come from studies. It requires a lot of data on economic activity in the informal sector, which is major challenge,” she said.
According to Zimra, current tax obligations for SMEs include Presumptive Tax, Income Tax, Value Added Tax (VAT), Pay As You Earn (PAYE) and Withholding Tax.
A supportive tax system is one of the measures that are currently being considered by Government to co-opt SMEs into the mainstream economy.
Plans are also underway to nurture SMEs through a Local Content Policy, which seeks to promote the procurement of goods from the local market, and enhancing public procurement practices in order to encourage the participation of SMEs in public tenders.
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