Calls for emerging sector formalisation grow louder
BUSINESS REPORTER
Calls for the formalisation of the emerging sector has grown louder after Zimbabwe’s largest retailers and wholesalers lobby group, Confederation of Zimbabwe Retailers (CZR) submitted a policy brief to the government outlining a comprehensive strategy that convinces the informal players to formalise.
According to the 2022 Finscope Survey, Zimbabwe has 3.4m Micro, Small and Medium Enterprises (MSMEs) owned by 4.2m entrepreneurs and employing 4.8m people. The sector is contributing US$8.6bn to the country’s Gross Domestic Product (GDP).
Also, the emerging sector is a significant source of employment in Zimbabwe, particularly for vulnerable populations as according to ZimStat’s 2023 Q2 Labour Force Survey Report, 1 375 493 people are employed in the informal sector, excluding those in the agricultural sector, and represented 42.5% of total employment.
This makes the emerging sector a powerful division as various formalised entities are coming up with a number of products to benefit from this sector.
The emerging sector only transacts in United States dollars and has stable prices as well as the fact that the manufacturers have shunned the formal shops because they trade in both United States dollar and Zimbabwean dollar, causing the government and manufacturers to be at loggerheads.
Despite the emerging sector selling at stable prices all year round, there are a plethora of challenges which include high levels of informality, widespread tax evasion, unfair competition and limited access to finance.
In the latest policy brief submission, CZR president Mutashu said the emerging sector is prevalent in the retail and wholesale sector, and presents opportunities for fostering economic growth and stability if well managed.
“The formalisation strategy outlined in this policy brief seeks to tackle significant challenges encountered by Zimbabwe’s retail and wholesale sector. These challenges include high levels of informality, widespread tax evasion, unfair competition and limited access to finance. By promoting formalization, the strategy aims to foster sustainable business practices, attract investment and contribute to the overall development of Zimbabwe’s economy.
“By operating outside the legal framework, it might result in a lack of accountability, reduced consumer protection and limited access to formal markets. By encouraging emerging retailers and wholesalers to register their businesses and comply with relevant regulations, the formalisation strategy seeks to bring them into the formal economy, creating a level playing field for all businesses,” Mutashu said.
Various tuckshop owners at the downtown area are believed to be refugees from various countries including Rwanda and Togo among others.
It is believed that some law enforcement agents and municipal officers are fleecing these tuckshop owners and businesses warned that this act must stop immediately.
“The formal retail sector is concerned about the harassment and intimidation of players in the emerging retail and wholesale sector by rogue officials who fleece players from this constituency. A case in point is a scenario whereby council enforcement officials are alleged to collect an average of US$10 per unregistered shop as tip for not issuing fine tickets while a number of concerns have been raised about tax enforcement officials.
“It is further suggested that person to person interactions be reduced through the implementation of simplified online and digital platforms for payments of presumptive taxes or fees. Authorities are also urged to protect refugees operating in the emerging retail and wholesale sector for more than five years by accelerating compliance with reserved sector exemptions,” Mutashu said.
” It is also recommended that officials in charge of departments to do with refugees be rotated as there are more and more allegations of coercion, intimidation, and demands for kickbacks unduly. Most of them live in constant fear yet as Africans, if someone is a legitimate refugee and poses no security risk to the country, there is definitely no need for them to be harassed unduly. It is important to normalise protection, not infringement. CZR urges refugees with work permits to fully and unequivocally comply with the laws of Zimbabwe at all times as failure to do so will lead to the full wrath of the law catching up with them . The protection of businesses owned by refugees augurs well with President Emmerson Mnangagwa’s mantra that: “Zimbabwe is open to business. Friend to all, enemy to none.”,” he added.
Mutashu said it is critical never to sound xenophobic against other Africans but to ensure the cohabitation among all law abiding traders occupying the retail and wholesale sector while assisting them to regularise.
“Africans should lead by example on policies that respect one another . The foreigners referred are apparently refugees who were assisted to get work permits by the visionary His Excellency President Mnangagwa way back when he was Minister of Justice after touring Tongogara Refugee Camp,” he said.
Mutashu urged the authorities to simplify the registration process, taxes and should not harass foreign tuckshop owners but encourage them to formalise their businesses and contribute to fiscus.
He recently said formal businesses are being pushed to the brink by the informal sector, whose business is thriving as they do not pay taxes.
CZR said informal business can be regularised; this will lessen the competition between formal and informal business.
“Tax evasion is another pressing issue within the sector, depriving the government of much-needed revenue. Most emerging businesses are often forced to evade taxes such as value added tax, corporate tax and others, placing an unfair burden on the formal players who comply. The formalisation strategy proposes initiatives to educate and incentivise emerging businesses to fulfill their tax obligations. This could include providing tax education programs, offering attractive tax incentives and establishing a simplified tax regime for small businesses, thereby promoting fair competition and ensuring a more equitable tax system, as dictated by Section 298(1bi) of Zimbabwe constitution,” he said.
The Treasury fears that the tax base could shrink by 25% if the emerging sector continues to grow at such an alarming rate.
Government has started some formalisation awareness programmes through the Reserve Bank of Zimbabwe and Ministry of Industry and Commerce Ministry.
Yesterday, Industry and Commerce Minister Stembiso Nyoni toured downtown tuckshops to understand their operations.
“We want to understand how the emerging sector operates, then we see how we can take baby steps towards formalisation. Our formalisation processes are still at the initial stages, we will give more details after more engagements,” Nyoni said.
Mutashu said limited access to finance is a significant barrier faced by some formalising retailers and wholesalers later alone the merging businesses which lack proper documentation and perceived risk.
“The formalisation strategy calls for collaboration between the government and financial institutions to develop tailored financial products, such as microfinance and loans, specifically designed to meet the needs of formalized retailers and wholesalers. This would enhance their ability to invest in their businesses, expand operations and contribute to economic growth.
“By promoting formalisation, the strategy aims to foster sustainable business practices. Formalised businesses are more likely to adhere to labour laws (providing decent employment), environmental regulations and ethical business standards. This would contribute to a more socially responsible and environmentally sustainable retail and wholesale sector, enhancing Zimbabwe’s reputation as a favourable business destination and attracting domestic and foreign investment,” the CZR chief said.
CZR recommended the establishment of a dedicated taskforce, develop a comprehensive awareness campaign, provide capacity building campaign, review and amend existing regulations and establish a feedback platform to effectively implement the formalisation strategy.