Zimbabwe’s high cost of compliance is eroding companies’ profits and incentivising informalisation, hence, the Government should do more to reverse the scenario, business leaders and experts have said.
The cost of compliance for businesses is the total amount of expenses a business incurs to meet regulatory requirements.
In Zimbabwe, business experts and captains of industry contend the mandatory regulatory environment remains tough for both old and new businesses and investors, resulting in some exploring loopholes to avoid compliance.
Confederation of Zimbabwe Industries (CZI) economist Dr Cornelius Dube, in a presentation at the Business Weekly-organised 2025 Post Budget Breakfast meeting on Monday, said Zimbabwe has the third highest mandatory compliance burden in the SADC region.
“Profitability for companies has been falling while economic activity is still high. This is a result of the high cost of compliance, which is eroding profits while high informality is eroding market shares,” he said.
He noted that according to World Bank data, the total tax and compliance rate is 32 percent of profit for Zimbabwe.
Dr Dube said regulators could be the main beneficiaries of business activities, and the 2025 budget did not provide any measures towards dealing with costs of regulation besides passing the burden to the Office of President Cabinet (OPC).
He noted that for a solar farm investment, engineering estimates on regulators collections in terms of permitting and licensing fees to completion of the project development phase of 1 to 10 megawatts (MW) amounts to US$129 774, with the EMA certification fee accounting for US$73 600.
From 11 to 25MW, total permitting and licensing fees to completion require a total of US$264,256, while 25MW to 50MW requires US$524,048.
Tax expert David Masaya said the 2025 Budget did not provide any measure towards costs of regulation.
He noted that VAT collections have been going up while the profitability of companies is decreasing, highlighting the high nature of compliance costs.
“Government should provide incentives to formalise the informal sector and make them see the benefits of formalisation through streamlining the costs of compliance,” he said.
Zimbabwe’s economy is highly informalised, accounting for an estimated 60-70 percent of the economy, generating annual revenue of US$14,2 billion, according to the Reserve Bank of Zimbabwe.
CZI president Mucha Mkanganwi, speaking at the post-budget meeting, said incentivising informal players through asset protection, rights entitlements, and benefits tied to formalisation could encourage them to transition.
“The high cost of formalisation is a significant barrier. Instead of focusing on how to tax the informal sector, we should prioritise making formalisation attractive. Conditional incentives such as social insurance schemes could be an effective starting point,” he said.
This is, however, different from a Government approach of instituting several tax heads and penalties in an effort to drive formalisation.
According to Masaya, the tax expert, failure on mandatory registration of various operators, clothing merchandisers/boutiques, car dealers, and lodges and the compulsory use of POS machines triggers presumptive taxes ranging from US$20 000 to US$60 000 from a monthly average of US$1 700 to US$5 000, that is on assumed monthly profits of US$7 000 to US$20 000.
Farai Mutambanengwe, founder and chief executive officer of the SME Association of Zimbabwe, said the current tax regime discourages formalisation.
“Most SMEs are focused on survival and generating money. The moment they hear about taxes, they lose interest. Many don’t even understand the budget or its implications,” he said.
He noted that the punitive nature of the tax system criminalises informal sector players.
“It’s not that people don’t want to pay taxes, but the regime is too radical. Street vendors, for instance, cannot afford these taxes. This approach will only drive SMEs further into non-compliance,” he added.
However, Finance, Economic Development, and Investment Promotion Minister Professor Mthuli Ncube said the informal sector is only informal to the Zimbabwe Revenue Authority (Zimra) and National Social Security Authority (NSSA) but formal to other regulators and local authorities.
“What is lacking is the sharing of data between Zimra and the local authorities; should that happen, we can formalise the sector quickly,” he said.
The minister said through the 2025 Budget, he proposed a number of measures focused on SMEs aimed at bringing them into formal channels.
He promised to act on the issue of the high cost of compliance in conjunction with the OPC, indicating that there are also windows of opportunity to review certain aspects of the budget as raised by industry, business, and experts.
Source: Business Weekly
