HomeBusiness DigestFormalise informal sector: Govt urged

Formalise informal sector: Govt urged

REVELATIONS that a staggering US$7 billion is circulating in the informal sector when the country is suffering from a debilitating liquidity crunch is a major concern, but efforts should be directed towards resuscitating the economy, analysts have said.

Kudzai Kuwaza

According to a Small and Medium Enterprises (SME) survey conducted in 2012, a total 5,7 million jobs have been created from 2,8 million small businesses, while 800 000 small business had employed 2,9 million people.

While delivering a ministerial statement to update the house on what her ministry was doing to formalise the sector, SMEs minister Sithembiso Nyoni said government was losing substantial amounts of money to the untapped informal market, adding there was need to formalise it to boost government revenue base.

The need for revenue for government coffers is more acute at a time the tax base is shrinking as companies either downsize staff or close shop altogether with more people likely to join the informal sector as a result.

The failure by the government to pay civil servants salaries on the scheduled dates is indicative of the cash crunch that has paralysed the economy.

The Zimbabwe Revenue Authority (Zimra) has been blamed in some quarters for failing to put in place measures to collect tax from the informal sector, thereby prejudicing the country of millions of dollars in potential revenue.

However, tax expert Tendai Mavima does not agree. “I am fully aware of the efforts that Zimra have made,” Mavima said.

“They have carried out taxpayer education including on television. I have seen them raid Mupedzanhamo (Flea market based in Mbare) and buses and lorries offloading imported goods. To say Zimra has not been doing anything is unfair.”

He said the question was not if Zimra had made any efforts to collect taxes from the informal sector, but whether they had done enough.

He added there were adequate tax laws to collect revenue from SMEs and what was needed was the enforcement of the law.
Mavima said the renewing of the business lease for SMEs should be on condition of the proof of tax payments. This, he said, would ensure improved inflows from the informal sector.

Former Zimbabwe National Chamber of Commerce (ZNCC) president, Oswald Binha said the intensified drive by government to increase revenue through formalising SMEs smacks of desperation.

“This is a desperate position. SMEs are free riders to the economy,” Binha, said. “Once the environment becomes too stringent, they can move away just like birds moving around with the weather.”

He said the US$7 billion figure being bandied about was an abstract figure, as there has no substantive framework put in place to come up with such a figure.
“If it (US7 billion) does exist, we need empirical evidence to prove it. We need statistics such as how much is coming from cross border traders and how much is coming from small-scale miners, so we do not spread our resources too thinly,” Binha said.

He said there was need to revive the institutions such as Hwange, Sable Chemicals and Ziscosteel to help resuscitate business, adding that SMEs could only thrive in an environment that business also thrives.

“We need think-tanking on the structure of our economy,” Binha urged.

Economist John Robertson said the cumbersome requirements by government to start a formal tax-paying company encouraged the increase of informal traders. He said there was need for the government to make it easier for entrepreneurs to start their businesses.

Robertson said the figure of US$7 billion was most likely “guesswork” given that nobody knew the actual figures of revenue circulating outside the formal sector.

He said the challenge of collecting revenues in the form of taxes from informal traders was that most of them were scattered with no business address. This, Robertson said, made it easy for them to duck authorities and avoid paying taxes.

“We have created a nation of informal traders and scavengers,” Robertson said.

He said the country needed major investors to breathe life in the economy more than chasing informal traders to boost dwindling revenues.

“The country does not need SMEs as much as it needs major investors,” Robertson added.

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