GOVERNMENT’S clampdown on small to medium enterprises (SMEs) for taxation purposes will adversely affect the sector and only motivate evasion, the sector’s umbrella body has warned.
The warning comes after the Zimbabwe Revenue Authority (Zimra) has been put under increasing pressure by Treasury to squeeze a lot of revenue from companies as government seeks to consolidate its revenue base.
A number of people operating in the SME sector are running businesses out of necessity rather than opportunity as soaring unemployment and continued company closures remain unabated.
SME Association of Zimbabwe chairperson Farai Mutambanengwe told sister paper NewsDay Business last week that the government’s focus should be formulating and implementing policies that foster growth of the sector, so as to widen the government revenue base.
“Basically people have to be tax compliant. The problem with the Zimra approach is that it is more of a knee-jerk reaction rather than a strategy to incorporate SMEs and the informal sector into the formal sector,” he said.
He added that there should be mechanisms put in place on how to get the sector to be compliant and make it contribute more meaningfully to the fiscus.
“Everyone in the sector is struggling. The SME sector feeds off huge corporates and governments and if these do not do well this has an adverse impact on SMEs,” Mutambanengwe said.
The government’s high debt at $9,9 billion is largely attributed by analysts as a major factor hampering the inflow of foreign direct investments.
Mutambanengwe said tax is usually levied on profits and there were hardly a significant number of small businesses in the country making profits in the economy facing a liquidity crunch.
“There is a minimum level of income that should qualify for taxation of small businesses or individuals. All of that is being disregarded,” he said.
Under Zimra’s tax regime, SMEs are granted 50% special initial allowance in the first year and 25% in each of the next two years of assessment.
This allowance is an incentive primarily designed to enhance their growth rate and to attract micro enterprises to formalise their transactions.