Feasibility of Administering Informal Sector Taxation: Approaches and Hurdles. A Case of the Informal Sector in Bulawayo, Zimbabwe

Authors : Favourate Y Sebele-Mpofu, Cheneso Msipa

Volume/Issue : Volume 5 - 2020, Issue 2 - February

Google Scholar : https://goo.gl/DF9R4u

Scribd : https://bit.ly/38XTAd4

Many African countries have experienced an expansion of the informal economy and Zimbabwe is amongst the highest affected. The growth of the informal sector (IS) has largely been viewed in two contexts. Firstly as a survival net for the poor and secondly as an escape from regulation and deliberate intention to avoid paying taxes and these views have been generalised to the detriment of realistic tax policy formulation. Countries in the region have devised various strategies to tax the IS, with the intention to broaden the tax base. Zimbabwe adopted a presumptive tax system for various IS categories, to generate the desperately needed revenue for the fiscus. The minimal tax revenue contribution by this sector which is incommensurate with its alarming growth and weighty contribution to GDP informs this research. The meagre attention associated with studies concentrating on taxation, its administration as well as revenue mobilisation capabilities in general and IS taxation in particular in the African continent also motivates this study. This study was carried out in Bulawayo to evaluate the strategies and challenges to IS taxation in Zimbabwe. The perspective of IS players from the different categories and those of the Zimbabwe Revenue Authority (ZIMRA) through its officers were sought by means of a sequential mixed method approach using questionnaires and interviews. The major findings were that: the key motives towards the IS taxation were not clearly outlined and there was inadequate appreciation of the drivers of the growth of the IS. However a precursory understanding of the magnitude of the IS, its genesis and continued swelling remains crucial in the crafting of a legitimate, logical and practical IS tax framework. It was also evident that ZIMRA was not adequately equipped to tackle the large IS which is inherently hard to pinpoint, trace and adequately tax. The IS was ignorant of the presumptive taxes in place and the few who were privy could not comply because of the purportedly high tax rates. The conclusion reached was that the ZIMRA was not ready to enforce any tax laws on the IS. Preliminary studies and IS inclusion in the crafting of IS tax policy were critical for understanding the nature of informal activities in Zimbabwe and all this hinged on the government commitment to support the endeavour as well clarity of intentions and objectives with regards to IS taxation.

Keywords : Informal Sector, Taxation, Presumptive Tax, Tax Policy, Simplified Tax System.


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31 - December - 2023

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