From Informal to Formal: CZR’s Innovative Tax Approach

By Cimba Shepherd Nhamo

Zimbabwe’s retail sector is poised for a major overhaul with the Confederation of Zimbabwe Retailers’ (CZR) proposal of a three-tier presumptive tax system for micro, small, and medium enterprises (MSMEs). This innovative approach aims to tackle the growing issue of informalisation in the economy and create a fair and equitable tax regime for small businesses.

The proposed system categorizes MSMEs into three distinct tiers based on factors such as business size, turnover, and number of employees. The first tier includes businesses with annual turnover of up to $15,000, such as small tuckshops and market stalls, which would pay $500 in annual presumptive tax. Medium-scale MSMEs with annual turnovers of $15,000 to $50,000 would fall under the second tier and pay $1,500, while large-scale MSMEs with annual turnovers of $50,000 to $100,000 would be classified under the third tier and pay $3,000.

This system, inspired by Tanzania’s successful model, promotes fairness, sustainability, and simplified tax compliance. By integrating Value-Added Tax (VAT) into the presumptive tax model, businesses would collect VAT at a reduced rate and remit it as part of their presumptive tax payment. This streamlined approach eliminates the need for separate VAT and presumptive tax systems, reducing costs for both businesses and the Zimbabwe Revenue Authority (ZIMRA).

The CZR estimates that Harare’s central business district alone could generate over $50 million annually, with potential national revenue increasing up to $200 million annually. This would be a significant boost to Zimbabwe’s economy. Informalisation currently costs the Treasury approximately $1.15 billion annually.

To address this, the Zimbabwe Industrial Reconstruction and Growth Plan proposes simplified tax models for SMEs and a formalisation strategy to broaden the tax base. The CZR believes its proposed system will enhance Zimbabwe’s tax revenue, foster small business growth, and promote economic development.

With cooperation from the Zimbabwe Revenue Authority and local authorities, this system can be tailored to suit diverse economic landscapes while ensuring simplicity, fairness, and inclusivity. The CZR is uniquely positioned to mobilise MSMEs across the country towards this proposed taxation criterion, leveraging its extensive network across the informal retail trading sector.

By working closely with ZIMRA, the CZR aims to provide necessary guidance and support to MSMEs, simplifying the registration process and ensuring tax compliance. This collaborative effort has the potential to transform Zimbabwe’s retail sector, promoting economic growth and development for years to come.