The Zimbabwe Revenue Authority (Zimra) has announced a tax reprieve for small businesses, offering a six-month grace period for informal businesses to register for taxes. The move is aimed at boosting State revenues while creating a more equitable market environment.
Revised guidelines have been introduced, stating that businesses not eligible for Value Added Tax (VAT) and not registered for income tax will be subject to a 5 percent withholding tax. These regulations aim to combat tax evasion, promote fair market competition, and address concerns about unfair competition from the informal sector.
Previously, major supermarket chains and manufacturers were not required to source raw materials through wholesalers. However, the new regulations limit purchases from manufacturers to tax-compliant wholesalers, ensuring fair competition.
The initial trading rules faced criticism from various stakeholders, including manufacturers, wholesalers, and business advocacy groups. In response, Zimra has announced new guidelines that allow manufacturers, wholesalers, and retailers with valid tax clearance certificates and VAT registration to buy directly from manufacturers. Additionally, Zimra has identified specific goods, such as milk, bread, and building materials, that consumers can now purchase directly from producers.
Informal traders who are not VAT-registered or income tax-registered are now allowed to purchase directly from manufacturers, subject to a withholding tax payment. VAT-registered retailers with a valid tax clearance certificate can continue purchasing from wholesalers, while non-VAT entities will be subjected to a 5 percent withholding tax on invoices.
However, the 5 percent withholding tax does not apply to purchases of medical supplies or by government ministries and departments, excluding statutory bodies.
The Confederation of Zimbabwe Industry (CZI) had previously proposed a 3 percent presumptive VAT on all goods sold to registered traders who are not tax compliant. This proposal aimed to ensure immediate tax collection equivalent to 3 percent of the current trade volumes between manufacturers and informal traders.
Zimbabwe’s informal sector, which makes up a significant portion of the economy, has largely gone untaxed. The six-month grace period provided by Zimra aims to facilitate the formalization and tax registration of informal businesses, including those in rural areas. This move is expected to increase government tax revenue.
Economic analysts believe that formalizing the informal sector will help curb tax evasion and create a more equitable business environment for formal businesses. They consider formalization as an opportunity to address the unfair competition faced by established businesses.
The Confederation of Retailers Association has welcomed the government’s focus on formalizing informal businesses. They are currently engaging with formal retailers and wholesalers to gather feedback on the impact of the new measures.
The tax reprieve offered by Zimra is seen as a step toward leveling the playing field and boosting government revenue. The grace period aims to encourage informal businesses to formalize their operations, leading to a more transparent and regulated business environment.
As the informal sector plays a significant role in Zimbabwe’s economy, this transition is essential for the long-term growth and stability of the country. By bringing informal traders into the tax net, the government hopes to create a fair business landscape that benefits all stakeholders.
