ZIMBABWE’S complex and costly tax framework is discouraging micro, small and medium enterprises (MSMEs) from formalising, undermining efforts to integrate a sector that generates more than US$14 billion annually into the mainstream economy, the Small and Medium Enterprises Development Corporation (SMEDCO) has said.
Despite the sector’s significant contribution, many small businesses remain informal, deterred by what they describe as excessive compliance costs and limited incentives for tax registration.
According to the central bank, the informal economy generates over US$14 billion each year. Zimbabwe National Statistics Agency data show that of the 204 798 operational establishments in the country, 76,1% are informal.
In an interview with businessdigest, SMEDCO finance director Tapiwa Nyagumbo said the high cost of compliance remains the principal barrier to formalisation.
“The challenges that MSMEs are facing are not many, but the lack of formalisation emanates from the fact that the compliance cost is just too much. For MSMEs, they still say, ‘it is just cheaper for me to stay non-compliant’,” he said.
Nyagumbo noted that multiple presumptive taxes, layered on top of existing tax obligations, create a cumulative burden that many small businesses struggle to manage.
“It is difficult for an MSME to do that, as the number of presumptive taxes is just too many. But the taxman does not acknowledge that an MSME has paid these presumptive taxes,” he said.
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Under the current regime, some operators may pay several presumptive taxes without receiving formal recognition equivalent to that granted to fully-registered companies.
“So, one MSME might have to pay multiple presumptive taxes, which might even make it more expensive at the end of the day. They then just avoid it,” Nyagumbo said. He added that many small business owners are primarily focused on day-to-day survival rather than regulatory compliance.
“These guys do not even listen to the national budget. They are concentrating on making sure that they survive,” he said.
Nyagumbo argued that formalisation would improve if government introduced clearer incentives. He suggested linking tax compliance to access to public procurement, finance and broader markets.
“Government is a huge consumer of products and services in the economy, probably the largest procuring entity. There is a way to ensure that if I am tax compliant, I get to participate in that market,” he said.
He also proposed that the Zimbabwe Revenue Authority could use compliance history as an alternative form of creditworthiness.
Nyagumbo called for innovation in the tax framework, including issuing tax clearance certificates to presumptive taxpayers and intensifying awareness campaigns to simplify compliance requirements.
