Taxation has been a major issue in Zimbabwe for the past 15 years or so, forcing investors to pull away. Over the years, small companies operating in the country have become non-compliant with tax authorities, as a result of high tax rates and fees.
Since the start of 2018, the government has made efforts to implement policies which favour both local and foreign investors. However, little progress has been made to solve the issue of high taxation. The Southern Times reported that,
“There have been some initiatives by Government to introduce tax-friendly policies and laws but most of these have not been implemented. However, the most ideal solution for the country is an optimal balance between a tax regime that is business and investment friendly, and one which can leverage enough revenue for public service delivery to enhance the attractiveness of the economy.”
Currently, Zimbabwe is ranked 159 out of 190 countries in the World Bank’s ease of doing business index. The country’s ranking has improved slightly compared to 161 in 2016. The ‘Open for Business’ mantra has captured investors’ attention, however, policy proposals by the new government need implementing to maximise the country’s growth. Although the rise of the informal economy in Zimbabwe has been triggered by several factors, the country’s taxation system forced many SMEs to go off the books.
A study by the International Monetary Fund (IMF) discovered Zimbabwe’s informal sector as the largest in Africa and second largest in the world after Bolivia. The study titled “Shadow Economies Around the World: What Did We Learn Over The Past 20 Years?” revealed that,
“More than 60% of the Zimbabwean economy is informal, second only to Bolivia’s 62.3%. This should be contrasted to the most formal economies, Switzerland and Austria at 7.2% and 8.9% respectively.”
“The shadow economy includes all economic activities which are hidden from official authorities for monetary, regulatory, and institutional reasons.”
The new government has recognised problems facing the country’s business environment and, have so-far proved they can restore its economy.