The Zimbabwe National Chamber of Commerce (ZNCC) has advised the Government to come up with a simplified tax regime so as to encourage formalisation of businesses to curb high level of informality developing in the economy.
In its state of industry and commerce survey, ZNCC made a recommendation to the authorities to revisit the idea of a simplified tax regime as a way of enhancing compliance in the informal sector taxing process.
Simplified taxation for micro and small enterprises (SMEs) in developing countries is generally introduced to facilitate voluntary tax compliance and remove obstacles in moving toward business formalisation and growth.
Previously, organisations particularly those classified under the SME segment have requested a simplified tax regime for MSMEs and even made submissions under the rapid response initiative.
It is estimated that over 60 percent of Zimbabwe’s current economic activity is carried out in the informal sector and a simplified tax regime will in a way promote compliance in the sector.
Normally the simplified tax regime is churned out in form of a very simple lump sum or fixed amount of taxes (also known as patents), usually targeted at micro-enterprises, taking into account that such businesses are often operated by illiterate or semi-literate entrepreneurs.
ZNCC president, Mike Kamungeremu, said the complexity of the local taxing system was a deterrent to some small businesses hence the need to adopt a more basic system.
“This came from the respondents to the survey who happened to be businesspeople in Zimbabwe, their sentiment is that there are too many tax heads and even trying to understand them is a complicated exercise that requires experts.
“ . . . no wonder why there are people
that specialise in offering tax services because it is not that simple even to compute taxation, it is not simple for people to even understand things like deferred tax, and those are some of the things that
constitute the current tax regime,” said Kamungeremu.
However, findings show that despite the operation of a special simplified tax regime, some small firms may be deterred from formalising due to perceived excessive tax burdens, compliance costs, and risks (including risks of punishment for real or alleged non-compliance).
According to the World Bank, very simple fixed tax regimes which do not require much bookwork or records tend to be overly popular, but prone to abuse.
Some are churned out as presumptive profit taxes or single taxes which are based on turnover, either with the tax liability calculated as a percentage of turnover or with net profit calculated by applying a standardised cost deduction from turnover to account for business expenses.
Kamungeremu said the business stakeholders implored the government to review the tax system by reducing tax heads and its requirements as business people felt a simplified system would assist a bit in formalisation.
“They are saying if tax regime is simplified, an example is how presumptive tax works, where a person knows that they are paying a fixed amount for a certain period of time before operating that is straight forward, you pay that amount and you know you are done with taxation matters that is what businesses are appealing for.
“Failure to totally comply and getting tax clearance certificate, is forcing enterprises to operate informally because formality will require them to have tax clearance certificate,” said Kamungeremu.
ZNCC also pointed out that the Intermediate Money Transfer Tax (IMTT), getting a tax clearance certificate, excise duties, and levies were some of the key factors denting the ease of doing business in certain sectors.
According to ZNCC the 2 percent IMTT on foreign currency transactions and withdrawal levies were disincentives to the formal banking channels, compelling businesses to transact largely in hard cash.
SME Association of Zimbabwe chief executive, Farai Mutambanengwe, is on record advising the Finance and Economic Development Minister, Professor Mthuli Ncube ,to revisit the idea of a simplified tax regime (discussed before) as a way of enhancing compliance in the informal sector taxing process.
“We made a request for a simplified tax regime for MSME’s a few years ago which was part of rapid response initiative, clearly that submission has now gathered dust, we would like the minister to dust it up, look at it again as a way of taxing the MSME sector,” said Mutambanengwe.