Government has proposed a raft of tax measures crucial to restoring the trading structure, where the bulk of goods are retailed through the formal sector that contributes to the fiscus.
This comes as major retail players from diverse sections of the economy, like food, clothing, textiles and footwear, have fallen victim to the sprawling informal sector, resulting in reduced margins and profitability.
Economists have been of the view that the Government is occasionally fomenting the existence of the non-tax-paying informal sector, as it has in some instances instituted statutory instruments that allow individuals and corporations to import merchandise duty-free, which erodes the manufacturer’s wholesale-retail value chain.
However, in the 2024 National Budget, Finance, Economic Development and Investment Promotion, Minister Mthuli Ncube, said the business model of micro and small enterprises structurally avoids regulatory requirements that include compliance with taxation.
“It is, thus, crucial to restore the trading structure, where the bulk of goods are retailed through the formal sector that contributes to the fiscus.
“Therefore, in order to restore the supply chain from the manufacturer, wholesaler and retailer, I propose that only licensed and tax-compliant operators procure goods from manufacturers and wholesalers,” he said.
He further proposed that only traders registered for VAT purposes and in possession of valid Tax Clearance Certificates will be eligible to procure goods from manufacturers, and these measures will take effect on January 1, 2024.
Mthuli said the growth of micro and small enterprises has undermined domestic resource mobilisation efforts, particularly as formal businesses deliberately informalise operations and trade through tuckshops that predominantly trade in foreign currency.
“Over the years, they have significantly contributed to the gross domestic product and employment; hence, they are an important source of livelihood.
“However, it structurally avoids regulatory requirements that include compliance with taxation, local authority by-laws on operating infrastructure, health, sanitation, and licensing,” the Minister said.
Busisa Moyo, chief executive officer at United Refineries, posted on his X account (formerly Twitter) that it is a commendable move for the fiscus, but on the other hand, local industry will have to be protected for this to work.
“Or else informal traders may just import and go completely underground, and manufacturers will be left with customers who insist on credit terms with little bank finance,” he said.
According to the Retailers Association of Zimbabwe (RAZ), a body that represents major retailers such as OK Zimbabwe and Pick n Pay, the sector players used to contribute more than 20 percent to government revenue through value-added tax (VAT) and other forms of remittances, which has since declined due to reduced volumes within formal retailers.
Earlier in the year, Mthuli indicated that the Government was losing circa 25 percent of the revenue collections due to increased informalisation.
Manufacturers were accused of supplying goods to unofficial traders in search of the US dollar, despite concerns from the government that they should follow proper supply and distribution channels.
However, as part of efforts to restore sanity in the retail sector, the government removed the 10 percent trading margin when charging for goods and services by formal businesses, which had given informal traders a trading advantage.
Confederation of Zimbabwe Retailers president, Denford Mutashu, recently said the SI 118A of 2022 had served its purpose and now needed to be removed.
“The SI should be repealed to help companies survive through the tide. The recommendations by the MPC are a step in the right direction towards the gradual liberalization that the market has been calling for,” he said.
He added that the SI has been causing discomfort in the market, which has resulted in confusion in pricing; therefore, businesses should be allowed to function according to market forces.