Taxing the Rural Informal Sector: Myth or Reality?

Research Journal of Finance and Accounting, 2017

This paper attempted to give reasons why it is difficult for Zimbabwe and other developing countries tax the informal sector. This study adopted both a desk and library research approaches. This paper has established that there are many well researched practical recommendations in the literature on how to tax the informal sector and governments have failed to implement these practical strategies. However this paper recommended that a three factor audit trail framework must be developed in order to improve informal sector tax revenue. Keywords: Taxation, Informal Traders, Culture, Zimbabwe, Myth, Reality

Research Journal of Finance and Accounting, 2017

In this paper we sought to analyse the possibilities of raising revenue from the informal sector in the cashless/ plastic money era in Zimbabwe. The study employed literature review method. The evidence suggests that the informal sector play an important role in the Zimbabwean economy such as creating jobs, poverty eradication and also as a test bed from which willing taxpayers can graduate into mainstream however their contribution to the national tax revenue is insignificant despite Government efforts. We established that it is possible to increase tax compliance in this cashless era and formalise the informal sector activities. The study recommends that Zimbabwe Revenue Authority must follow the proposed outlined phases to accomplish the goal of increasing revenue from the informal sector. Keywords: Informal sector, Tax, Cashless Economy, Zimbabwe

2012

2020

The paper sought to find out factors that cause tax non-compliance in the informal sector in Zimbabwe. This study employed survey research design, questionnaires and interviews were used to collect primary data. Six (6) Zimbabwe Revenue Authority (ZIMRA) officers and Four (4) Bulawayo City Council (BCC) officers were interviewed to elicit information on tax compliance issues in the informal sector. Out of the one hundred and twenty (120) questionnaires issued to the owners of Hair salons and Flea markets one hundred and eight (108) were returned and data were analyzed using SPSS version 22. The study publicized that high tax rates, corruption of tax administrators, economic performance and lack of transparency in expending tax revenue by the government were the major precipitates of tax evasion. There is a need for the government to reduce tax rates, increase in taxpayer education, and deal with corrupt ZIMRA officers and giving tax benefits to those who obey the tax laws and simpli...

“An Examination of Constraints of Taxing the Informal Sector and the Impact on Revenue Mobilisation in Zambia”, 2024

Taxation is a fundamental tool for revenue generation, economy building and sustainability, reducing market externalities, regulating trade, stimulating representation and achieving tax justice as well as building state accountability and responsiveness. The informal sector in developing countries generally and Zambia particularly has been considered a hindrance to effective domestic revenue mobilisation, hence the rejuvenated focus to bring the sector into the tax baskets. Through a critical literature review, this study sought to identify the varying motivations tabled by the various stakeholders (policy-makers, scholars and tax administrators) in literature on the need to administer tax on this sector and to strengthen enforcement and to evaluate the plausibility of these motives critically. A total of 34 journal articles extracted from Goggle scholar, Research gate, Semantic Scholar and JSTOR formed the literature review. The factors were aggregated into five major groups: political interference, high cost of collection, lack of formality and limited potential for revenue. This study, therefore, conducted a profound evaluative analysis of literature on these factors, pinpointing any voids that future research could address and accordingly sought to contribute to the guidance offered to policy-makers on how to improve informal sector. The study shows that political interference with frequency of 12 at 35%, followed by limited revenue potential with frequency of 9 at 26%, high cost of collection with frequency of 8 at 24% and lack of formality at frequency of 5 at 15% in that order.

Research Journal of Finance and Accounting, 2017

This paper sought to establish the usefulness of a great array of recommendations aimed at taxing the informal sector. In terms of the methods and data collection, this paper predominantly reviewed literature (desk research). From the reviewed articles, this paper recognised that there are many practical policy strategies that developing countries can implement to combat informal sector but this paper has not establish whether each strategy would result in tax revenue in the short run or not. The paper further recommends that researchers must consolidate all the recommendations made and develop a framework/ model that incorporate key policy matters aimed at creating responsible informal sector world over.

European Business & Management, 2016

Zimbabwe solely depends on revenue targets formulated by the Ministry of Finance and Economic Development for the measurement of performance of the Zimbabwe Revenue Authority. The trend for this development is to rely on estimating the tax gap which is the difference between potential and actual collections. The study employed a quantitative research design and analysis of the major causes of reduction in tax revenue resulting especially from the envisaged high tax rates in Zimbabwe. A sample of 300 was targeted by the researchers from a population of 1700. This was stratified to 220 formally employed and 80 informally employed based on the ratio of 73% of gainfully employed in the formal sector. The findings of the study revel that the Zimbabwe Revenue Authority is not facing as much of a challenge when considering the overall effect of each of the four identified factors, that is, tax avoidance and evasion; corruption by employees of the revenue authority; inefficient and ineffective tax administration, and increased informal employment. However, regression analysis revealed that the most significant factor that weighs down tax revenue collectability is the continuous fall in the formal employment, as more workers lose their jobs and join the informal sector. The factor accounted for 25.7% of the total variance and the effect on revenue collectability was calculated at p-value =.001 which is less than 0.05. While individuals in the informal sector of the economy of Zimbabwe may actually be making more money than those formally employed there might be a lack of a system to allow for collection of taxes in the growing informal sector. The study recommends that the Zimbabwe Revenue Authority increases its efforts towards widening the tax base by designing a tax regime that will help the fiscus to tape into the informal sector`s economic activity in the country. This may be achieved through cooperation with financial sector institutions such as banks as they embark on an effort to deal with the challenge of financial exclusion in the economy. For example, as the banking sector considers offering financing packages to the informal sector, formalisation of the sector should be insisted as a condition for potential funding.

The notion of formalizing the informal sector in Zimbabwe is not new however; this paper asserts that although much is known on the subject, considerably little seems to be understood. This paper uses an extended literature review to characterize the identification of informality and explores the different approaches to formalizing informal activities. Furthermore, the concepts are contextualized to Zimbabwe's environment as a way of articulating the reality of available options that may be integrated into the transition process. It emerges that there is diversity of circumstances in rural and urban settings, economic sectors, occupations and national contexts. In this regard, this paper proposes a framework in which government and society play a central role in transforming Zimbabwe's informal sector to formalization and pave way for taxation thus broadening the country's revenue. Critical issues include revision, design and implementation of law and policies that dissolute informality.

The Business & Financial Times, 2021

Developing Country Studies, 2012

The past decade(2000-2010) for Zimbabwe was characterized by worst economic performance since its independence in 1980. Capacity utilization shrank to 10% and unemployment rate was above 80% by 2008 as the private and public sector unleashed massive retrenchments. This impoverished the great majority. High poverty levels forced the jobless to join the informal sector which uses labour intensive methods of production. Even in the aftermath of a decade long economic downturn, Zimbabwe's formal sector is still shrinking due to socioeconomic factors that hinder the local industry full capacity utilization. The retrenched are joining and actively participating in the informal sector. It is against this background of growing importance of the informal sector in alleviating national poverty that this paper put forward some policy intervention suggestions in promoting the growth of the sector.