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Tax dragnet closes in as govt targets informal traders

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Government is targeting informal traders across the country  as part of efforts to expand  the tax net  in a desperate bid  to rake in more  revenue required  to fund government’s tottering operations, Business Times can report.

Zimbabwe’s economy is largely informal, which causes the Zimbabwe Revenue Authority (ZIMRA), the country’s tax collection agency, to face a number of issues including unprecedented high rates of non-compliance, fraud, lack of cooperation, and failure to submit returns, among many other problems.

For the government, which depends on taxes to fund operations, these problems are a problem.

The administration is in a precarious position as a result of informalization and the rising dollarization, given that  the government receives no external budgetary support.

A budget deficit of ZWL$2.3 trillion (1.5% of GDP) is expected in 2024 as a result of the government’s projected revenue of ZWL$30.7 trillion falling short of its projected expenditures of ZWL$33.1 trillion.

According to government projections, total revenue collections will total 19.2% of GDP, with tax receipts accounting for 95% of that total and non-tax revenue making up the remaining 5%.

The development was confirmed by trusted Treasury sources, who stated that the fiscal authorities were looking for additional strategies to broaden the tax base.

“The government has a programme that is targeted towards compliance with reserved sector regulations  with particular attention to foreign owned shops in the downtown area.

“For those that have not complied are duly required and requested to comply with the law,”  a Treasury source told Business Times.

He added: “Definitely this will increase tax revenue into fiscus while reducing a lot of illicit  transactions that have also been taking place at that area.”

The Treasury worries that as the economy becomes more dollarized, the tax base could decrease by 25% as the informalized fail to pay their taxes to ZIMRA.

Mthuli Ncube, the outgoing minister of finance and economic development, stated in his mid-term budget strategy paper that the government would come up with a number of ways to increase its tax base.

“Achieving the target collections is underpinned by tax administration initiatives that enhance enforcement and tax compliance, in particular, of business processes and adoption of new technology, among other initiatives.

“Expansion of the base through embracing emerging industries, including those in the informal sector, as well as capturing the digital market place where sellers and buyers of goods and services converge through e-platforms will ensure that eligible taxpayers contribute towards national development,” Ncube said.

He claimed that ZIMRA has also implemented strict measures to stop money being lost to corruption.

“Furthermore, consistent with reforms to contain tax expenditures and minimise leakages, the government is prioritising review of concessions and contracts that undermine revenue collections as well as adjusting fees, levies and charges in line with the cost recovery principle,” Ncube said.

The integration of informal traders into the economy was welcomed by retailers.

“We encourage all the businesses that have not registered to take the opportunity to begin the process of registering their  firms.

“During the last quarter of this year, we are going to create a national Retail and wholesale database which  will enable every business operating within this space to be formally registered,” the Confederation of Zimbabwe Retailers  president Denford Mutashu told Business Times.

The effort to broaden the tax base arises from the increased use of US dollars in the economy, which increases the risk of the tax base contracting and the possibility of tax losses.

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