Zimra’s New Measures Spark Outrage Among Informal Traders

How the tax authority’s move to protect the value chain and counter unfair competition will impact the informal sector and the economy.

by Motoni Olodun

Zimbabwe’s tax authority has announced a series of new measures that will affect the operations of informal traders, wholesalers, manufacturers, and retailers in the country. The Zimbabwe Revenue Authority (Zimra) said the measures were aimed at protecting the value chain integrity and transparency and countering unfair competition by informal traders.

However, the move has been met with criticism and resistance by some stakeholders, who argue that it will threaten the livelihoods of millions of people who rely on informal trading, especially in the wake of the COVID-19 pandemic and the economic crisis.

According to the new measures, which came into effect on January 1, 2024, manufacturers can only sell their goods to wholesalers who are registered for Value-Added Tax (VAT) and have tax clearance certificates. The wholesalers can only sell their goods to licensed and registered retailers, while individuals can only buy goods worth not more than US$1 000 or its Zimbabwe dollar equivalent within 30 days.

Informal traders, who include hawkers, street vendors, flea market operators, tuckshop owners, and intermediaries, are encouraged to register with Zimra and be tax-compliant. They are also restricted from purchasing goods directly from manufacturers or wholesalers, and can only buy goods not exceeding US$20 or its equivalent in the local currency from the same wholesaler in any calendar year.

Zimra said the measures were in line with the Finance (No. 2) Act 13 of 2023, which introduced a global minimum effective tax rate of 15%. The legislation implements a domestic top-up tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023.

The tax authority said it had conducted workshops with clients throughout the country to explain the new measures and their benefits. It also said it had published a public notice in the press and on its website.

However, some business associations and experts have expressed concern over the impact of the new measures on the informal sector, which accounts for about 60% of the country’s GDP and employs over 80% of the workforce, according to the International Monetary Fund (IMF).

The Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza said the sector was still engaging the government over the taxes imposed by Finance Minister Mthuli Ncube. He said most of the issues in the Zimra statement were an extract from the Act by the minister, but they were seeking clarification and exemptions for some categories of traders.

Centre for African Governance and Development and the Durban University of Technology professor Gift Mugano said the government should scrap the proposed ban on traders from direct sourcing from manufacturers. He said this would affect the competitiveness of the local industry, as well as the availability and affordability of basic goods for consumers.

He also said the government should come up with VAT thresholds for micro, small, and medium enterprises, which are informed by realistic annual sales from each category of traders. He said this would enable the traders to contribute to the tax base without compromising their survival.

He warned that if the government sustained the ban, it could result in chaos, such as massive smuggling of goods from neighboring countries, tax evasion, and flooding of local products into the streets by local firms.

He urged the government to adopt a more inclusive and consultative approach to policy making and to consider the social and economic implications of its decisions.

Despite the challenges, some analysts have commended the government for its efforts to reform the tax system and broaden the revenue base. They said the new measures could help to formalize the informal sector, improve compliance, and enhance transparency and accountability in the value chain.

They also said the new measures could support the government’s vision of achieving an upper-middle-income status by 2030, as well as the Sustainable Development Goals (SDGs).

They advised the government to provide incentives and support to the informal traders, such as access to finance, markets, training, and infrastructure, to enable them to transition to the formal sector and benefit from the opportunities it offers.

Source: NewsDay Zimbabwe

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