eBusiness Weekly
One of the many challenges facing the new Government and, in particular, the Ministries responsible for Finance and for SMEs, and to a certain extent the Ministry responsible for Agriculture, is how to create a single unified economy and the widest possible tax base.
What we call the informal economy is here to stay. It will, everyone hopes, create ever higher incomes and become more orderly, but the basic identifying feature of a lot of small operations each run by what Zimra describes as a sole trader, or a pair of sole traders in the case of a couple or household, will remain.
Formal salaried employment in a registered concern or company, and the larger concerns and companies, will continue to dominate the heights of the economy, but will not dominate economic activity.
Part of this arises from Government policy. Farming, for example, is seen as a seamless operation ranging from small communal land farms all the way to a few large estates, but with the bulk of production coming from small family farms and easily the largest number of those in farming being self-employed on such farms.
Even the thrust towards more rural industrialization, the processing of what is harvested in a field into a greater variety of foods, and the sort of service industries that a farm-based community increasingly requires, will tend to be small and largely family-owned businesses.
For example increasing mechanisation will need a lot more mechanics, but we will almost certainly have these in a lot of small workshops close to the farmers, rather than expecting someone to drive a tractor 50km to the nearest small town; in fact it is far more likely for us to see mechanics going to farms, with the tools and small drums of oil in the back of a pick-up, or strapped on the back of a motorcycle, than the machine being brought into a workshop.
Even in urban areas, where larger businesses can operate in industrial sites or as the supermarket foundation tenant in a shopping centre, there will be a lot of small family businesses.
We already see this in the major change in city centres, especially in central Harare, the largest, where buildings are converted into small shops and stalls, and outside the supermarkets and a couple of hardware stalls and furniture shops, there are now hardly any of what used to be called ordinary shops.
Taxing this lot can be a nightmare using the old fashioned tax system. The old joke about taxing peasant farmers, that their profits are largely hidden and their losses form the sole topic of their conversation, expresses a serious truth.
Relying on self-reporting of income is difficult, when a lot of the business is done in cash, US dollars these days, and a Zimra audit is likely to cost several times the amount of tax that can be collected.
Indirect taxes help even the balance. Vat can now be more accurately gauged since Zimra demand businesses use receipting machines that record all sales, but Vat is not paid by the smallest concerns.
The switch from sales tax at the final point of sale to the tax collected at each stage of a value chain means that the bulk of VAT is collected at earlier points on the chain, so the final sale point is less important, but still a lot of tax is now missing with all those tiny sales points.
The policy of having very little cash available, and trying to use the modern technologies on mobile phones and better to have almost all transactions done electronically was a major advance, but cash has returned with the US dollar.
One way out of that would be to dry up the supply of US banknotes and so force everyone to move to mobile money and electronic payments from bank accounts.
For a start the diaspora payments from Western Union and the like be to US dollar mobile money accounts or FCAs in banks.
Banks could issue a second debit card connected to a FCA, and stop issuing US dollars at ATMs. This would be wildly unpopular, but the underlying infrastructure now exists, or at least would exist if some sort of universal tap card was available, in both currencies.
The transaction taxes on digital money bring a decent sum and are an indirect tax that can only be avoided with cash, and so if there is no cash, or only a very little cash, almost everyone would have to pay that tax. This would be a start in getting some taxes out of the informal economy at minimal cost, an almost perfect state of affairs for a Finance Minister.
For some years the Government, with the necessary backing from its Parliamentary majority, has been pushing presumption taxes, but collecting even these is not as simple as it looks in a budget speech.
Hardly anyone hiring a plumber, for example, deducts the 30 percent they are supposed to deduct if there is no tax clearance certificate and forward this to Zimra while giving the plumber the completed form that this tax has been deducted.
The idea was good, since most who should be having 30 percent of their gross deducted would normally pay a lot less when their whole income was assessed as a sole trader and so this was seen as a major incentive to get all sole traders to register as such at Zimra.
But that still leaves the problem of auditing and checking the tax returns from hundreds of thousands of tiny businesses as well as the problem of getting the formal sector, or others seeking personal services, to make the deductions in the first place
There are other presumption taxes, such as the US$1 a day a market-stall holder is supposed to pay to the more formal business, or other formal entity, that provides and rents out the stalls. That helps, but a lot of stall holders use a blanket on a pavement or a table in their house, and so there is no one to collect.
There has been pressure on local authorities to create the necessary markets that would allow this tax to be collected, but again there are challenges.
Harare, for instance, had the not very bright idea of moving everyone off the pavements or from little plastic shelters on the side of the road to designated markets far away from any potential customer.
That would not and could not solve the problem. About the best suggestion for at least the city centre would be to solve the problem of bus terminuses, most too small and all of them some distance from each other, with a large single bus terminus and interchange on railway land between the Harare Railway Station and Seke Road.
Here there is a collection of old cheap railway buildings, some substandard housing for security guards, and ancient workspaces that the railways do not and will not ever use.
While the station itself needs to remain, and be upgraded and expanded for commuter trains, the western half of the large railway reserve could be demolished and converted into a huge bus terminus and market, probably needing just two floors.
Moving all the vendors there would at least be keeping them next to the bulk of their customers, the people who use public transport. Taxes would be easy to collect.
The same problem of tracking down the traders applies to the presumption taxes a hairdresser, and others in that sort of service industry, are supposed to pay. Zimra can move around and hit those operating from more formal premises, but a lot simply work from home or even travel to the homes of their customers.
Senior Government and local authority staff, including ministers and councillors, who drive to work and do most of their shopping in formal businesses in upmarket suburban shopping centres, need to move out of their near self-isolation and see how the rest of the population lives to get a strong grip on how the small sole-trader sectors can be formalised without destroying the incomes of those who earn their living from them.
Once decision makers understand the economy, and the need to maintain the small business economy, they can then start the creative thinking of how to tax that economy, again without destroying it but again making the playing field a lot more level by having everyone pay some tax.
Meanwhile VAT and transaction taxes are the fairest and most effective, as even the small untaxed trader buys stuff that does produce VAT.
