Many large sections of Zimbabwe’s economy have become informal, leading many businesses to escape the tax net, thereby depriving Government of the much-needed revenue.

Recently, an International Monetary Fund (IMF) working paper noted that Zimbabwe’s informal sector could be the sixth largest in the Sub-Saharan region, contributing between 40 percent and 50 percent to economic growth, an estimated $7 billion.

The $7 billion figure tallies with a FinScope study made in 2012. ZIMRA says approximately 300 000 enterprises are paying tax countrywide but the figure could be much higher if SMEs play ball.

In a recent interview with The Southern Times, ZIMRA Commissioner General 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 afew 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 it necessary to implement reforms and reduce the tax where there is need and get those that are in the informal sector to pay tax.”

Mazani said the strategy on reducing tax for small businesses will be based on turnover revenue.

“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 two or three percent which you pay from turnover.

“This is something that we need to discuss with Government, engage the small business and put in place facilities 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 percent.”

The ZIMRA boss said the commission would submit its proposals to Government and embark on outreach campaigns to educate small businesses on tax matters.

“We will make proposals to Government on some of the changes. Most of the tax that we rely on is on employees and the few businesses that are compliant. We have a small clients’ office in all our regions. 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.”

She said the revenue authority will also commission studies to determine non-compliant players.

“We can’t give specific figures of how many businesses that 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.”

According to ZIMRA, current tax obligations for SMEs may include Presumptive Tax, Income Tax, Value Added Tax (VAT), Pay As You Earn (PAYE) and Withholding Tax.

Source: The Southern Times