The Sunday Mail
Enacy Mapakame
THE African Development Bank says reforms to integrate the informal sector into the mainstream economy will help to broaden Zimbabwe’s tax base and boost revenue collections.
Statistics from the Zimbabwe Revenue Authority show that net revenue collections dropped three percent to US$3,5 billion last year from US$3,6 billion in 2014.
While the formal economy has shrank, the informal sector has grown.
As a result, figures from Zimbabwe National Statistics Agency (ZimStats) show that the informal sector accounts for more than 80 percent of employment.
“The rising informality reflects the problem of underemployment implying that the country has abundant labour that is not being productively utilised,” said the AfDB in its latest economic outlook report on Zimbabwe.
“The rising informality presents 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.”
Enterprises like 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, most of whom are itinerant, compliant.
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 requires a combination of strong incentives for compliance and stiffer penalties for non-compliance,” it said.
“The fiscal and current account balances are projected to remain under severe pressure on account of under-performing revenues and poor trade performance on the back of an appreciating USD and weak global commodity prices.
“This presents a risk to the outlook. Government needs to build on the momentum and notable achievements already made in terms of implementing macroeconomic and structural reforms in order to achieve fiscal sustainability and to unlock the much-needed financial and capital inflows,” said the AfDB.
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 were not “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 other key economic sectors are struggling and reducing 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.
Agricultural production has declined an estimated 3,6 percent in 2015 on reduced output of major crops like maize, tobacco and cotton.
According to the Zimbabwe Economic Policy Analysis and Research Unit, a Government-sponsored think tank, tobacco sales declined to US$586,4 million from in 2015 from US$685,2 million a year earlier.
