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

Informal businesses

Presumptive tax

Supervisor

N/A