Government Introduces New Measures to Address Economic Informalisation

Finance Minister Mthuli Ncube
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HARARE – The Ministry of Finance, Economic Development, and Investment Promotion has unveiled a series of measures aimed at combating the informalisation of Zimbabwe’s economy.

The announcement follows deliberations led by President Emmerson Mnangagwa alongside the country’s Vice Presidents and various economic ministries.

The government’s concern stems from a trend of manufacturers bypassing formal wholesalers and retailers to supply goods directly to informal traders, which has weakened the compliance structure and competitiveness of the formal sector. This phenomenon has exacerbated issues such as tax evasion and the proliferation of smuggled goods in reserved sectors, severely affecting revenue collection and formal business operations.

The Economic Context

Since 2021, Zimbabwe has enjoyed an annual growth rate of 5.5%, attributed to positive performance across most sectors. However, 2024 marked a 2% slowdown in growth due to an El Niño-induced drought that hampered agricultural and energy outputs. Despite these challenges, formalisation in the retail and wholesale sectors poses a serious threat to sustained economic stability.

Manufacturers and informal businesses operating outside tax and labour compliance frameworks have been flagged as major contributors to this trend. This, coupled with the rising cost of doing business and poor governance within formal enterprises, has left the economy vulnerable to increased informality.

Current and Additional Measures

To address these challenges, the government is implementing the following key initiatives under the 2024 Mid-Term Budget and the 2025 National Budget:

  • Tax Enforcement: A 5% withholding tax has been introduced for non-registered Micro and Small Enterprises (MSMEs) supplying goods to wholesalers and manufacturers.
  • VAT Registration Threshold Adjustment: The minimum threshold for Value Added Tax registration has been reduced from US$40,000 to US$25,000.
  • Crackdown on Smuggled Goods: Goods such as alcoholic beverages, dairy products, and detergents now require proof of customs duty payment to be sold legally.
  • Tax Compliance via POS Systems: MSMEs are mandated to use Point-of-Sale (POS) machines linked to Zimbabwe Revenue Authority (ZIMRA) systems.
  • Targeted Financial Support: The Reserve Bank of Zimbabwe has launched the Targeted Finance Facility to provide working capital for SMEs and the retail sector.

Additionally, the government has proposed:

  1. Mandating the use of POS machines by all informal traders.
  2. Adopting international best practices in tax compliance enforcement.
  3. Discouraging manufacturers from supplying goods directly to the informal market.
  4. Establishing a Domestic Interagency Enforcement Team to curb non-compliance.

Impact on the Business Landscape

Formal businesses have expressed optimism about these measures, noting that increased tax compliance will level the playing field between formal and informal sectors. However, some stakeholders have called for streamlined regulatory frameworks to avoid overburdening SMEs transitioning to the formal economy.

The Ministry of Finance assured the public that consultations with industry players will continue to refine these strategies, ensuring they align with the country’s broader economic goals.

As Zimbabwe heads into 2025, addressing informalisation is seen as pivotal to achieving sustainable growth and reducing fiscal deficits.