Wednesday, the Zimbabwe Revenue Authority (Zimra) and the police closed off the Gulf shopping complex in Harare to collect presumptive tax from a myriad of informal traders plying their business in the mall.
Shoppers and retailers alike regarded the raid as a huge inconvenience as it came as a surprise.
Blitzes to collect tax from the informal sector, including truckers, kombi operators and shop owners, have taken this dimension where Zimra would launch operations on major highways or at shopping centres.
This mode of tax collection reflects an element of coercion in the whole exercise; that those paying the tax are doing so grudgingly. In fact, most are only paying the tax after being netted in blitzes.
It is therefore not surprising that in the budget statement announced by Finance minister Tendai Biti last week, government is projecting to collect a mere $5,2 million in presumptive tax this year out of the projected total of $736,5 million from tax on income and profits. The collections are expected to rise marginally to $6,3 million next year.
The contribution from the presumptive tax to the consolidated revenue fund — of $2,7 billion for 2010 — is virtually a drop in the ocean. It is anomalous as it reflects the failure of the taxman to collect revenue from small businesses and the small-scale sector which have been touted as the panacea to economic recovery.
What makes the presumptive tax contribution to the fiscus scandalous is the fact that our economy has moved from being a formal one to one where the informal sector now dominates economic activities.
Economists have said that 60% of the economy is now in the informal sector and the rest is formal. But this ratio is not reflected in any way in the tax contribution from the informal sector.
The state of affairs therefore calls for a rethink in the strategy to collect tax from the informal sector. Zimra has to change its approach in tax collection.
Blitzes and other operations of coercion do not work. There is still a lot groundwork to do to ensure the informal sector players start to run their enterprises professionally.
A lot of them lack business skills and knowledge of tax obligations. They do not register their business for tax purposes and often have poor recordkeeping and systems. Because the businesses are largely cash-based, they are prone to evasion.
More importantly though, there are many who see the collection of the taxes as a form of punishment. This arises from the system used to enforce collections where vehicles are impounded and shops shut down.
We believe that all business operations must play their part in paying taxes to ensure that government obtains revenue needed to satisfy budgetary needs.
The failure by the informal sector to pay taxes increases the burden for other taxpayers like large corporates and individuals who are formally employed.
It is incumbent upon the Finance ministry and Zimra to come up with a system that ensures registering for tax purposes is simplified and understood by all.
At the moment it’s not hence the war-like methods used in tax collection and concerted efforts to evade tax by small businesses.