BY VERNA NYAMUCHENGWE
ECONOMIC analysts say the government’s push for mandatory use of electronic transactions and taxation of informal businesses is a misinformed approach that risks driving businesses further underground.
The analysts told The NewsHawks that once businesses continue retreat underground it will diminish the government’s intended ambition to boost tax revenue.
During a post-cabinet briefing on Tuesday, finance minister Mthuli Ncube announced plans to introduce a compulsory tax payment system for Micro, Small-Medium-Enterprises (MSMSE) coupled with the mandatory use of electronic money, among other measures, to mitigate challenges faced by MSMEs and provide support.
This intervention comes amid widespread closures and downsizing of formal businesses due to various economic factors.
Economist Vivid Gwede said the government should focus on incentives and addressing deeper economic problems.
“The government needs to focus on how to incentivise informal businesses to formalise and grow their enterprises rather than focusing on enforcement. What value do the targeted business gain from formalising should be the main concern,” Gwede said.
“For the government to increase its tax base, it needs to grow the economy, especially in the manufacturing sector. This requires addressing the country’s investment climate and its image as well as dealing with currency problems.”
Another economist, Prosper Chitambara said authorities must put in place favorable incentives that facilitate voluntary formalization of the informal sector to avoid driving the MSME underground.
“Reducing the cost of compliance by simplifying registration, fees, levies and taxes, I believe will significantly facilitate formalization,” Chitambara said.
Economic analyst Vince Musewe said the viability of the mandatory electronic transaction system in the informal sector is questionable, emphasizing that the policy warrants further consideration.
“The informal sector prefers cash. Introducing mandatory POS is inappropriate and misinformed. It will not work,” Musewe said.
Another economist, Tony Hawkins said the strategy adopted by the government will result in the acceleration of the informal sector in the economy.
Hawkins said the diverse motivations and operating models within the informal economy are different and operate informally for various reasons, including necessity and tax avoidance.
“Minister Mthuli is not going to force them to formalize,” Hawkins said.
