An Alternative Framework for Taxation of Informal Businesses in Zimbabwe

Author

Manavele, Thompson

Title

An Alternative Framework for Taxation of Informal Businesses in Zimbabwe

Abstract

A number of informal businesses are not paying tax, and the framework in place is not effective
in taxing these informal businesses, hence there is a need for an alternative framework for
taxation of informal businesses in Zimbabwe. But, the presumptive tax system does not
generate significant tax revenues. If appropriate measures for revenue collection are put in
place, there is high likelihood that the burden to fund the national budget will decrease. This
study sought to find out an alternative framework for taxation of informal businesses in
Zimbabwe. This research used a sequential exploratory mixed method research design and used
stratified random sampling with a sample of 186 informal businesses in Bindura and 3 ZIMRA
officers. Also, this study used secondary data for the strategies used by other countries and data
was obtained on the websites, journal articles and publications. Data were analyzed using
Microsoft Excel and SPSS version 20. The research found that mistrust of tax authorities,
influence from other informal businesses, poor service delivery, lack of tax education,
complexity of tax system and high tax rates were causes of non-payment of tax by informal
businesses. Tax authorities faced challenges of political interference, resource constrains,
permanent physical address and poor accounting and record keeping practice by informal
businesses. Majority of other countries used presumptive tax based on turnover for taxation of
informal businesses and there is significant positive relationship between presumptive tax
based on turnover and GDP. The researcher conclude that the existing presumptive tax in
Zimbabwe is not well informed to taxpayers and ZIMRA is not well equipped to implement
the strategies for taxation of informal businesses. Presumptive tax based on turnover is the best
alternative for taxation of informal businesses. The study recommend that government must
engage informal sector associations and organization, simplifying the taxation framework for
informal sector, having progressive tax rates, increasing enforcement and tax amnesty. ZIMRA
should implement the proposed alternative framework for taxation of informal businesses in
Zimbabwe, which is the presumptive tax based on turnover.

Date

2023

Publisher

BUSE

Keywords

Taxation framework

Presumptive tax

Supervisor

N/A