Informal sector can help revive economy

A 2012 survey of the informal sector by FinScope makes interesting reading. According to the report, about $7.4 billion (mostly cash) is circulating within micro, small and medium enterprises, most of which are unregistered.


Paul Bogaert
Paul Bogaert

That translates to more than half of the country’s Gross

Domestic Product! Yet, while keeping the majority of the

population going in a country where unemployment is more than

80 percent, the sector is playing only a minimal role in supporting the economy.

Also, the country is losing a lot of much-needed revenue that could be realised through taxation of the informal sector, as is the case in countries like India and South Africa.

The Minister of Small and Medium Enterprises, Sithembiso Nyoni, who was drawing her statistics from the FinScope survey, must be hailed for her announcement that government is considering harnessing revenue through the regularisation and taxation of the informal sector. This is a strategy that should have been adopted long back and it is heartening that representatives of the sector are not averse to the idea.

Currently, most indigenous banks are smarting from a liquidity crunch. It is therefore desirable to use the informal sector to boost deposits and give life back to the financial institutions. Imagine what the $7.4 billion mentioned above could do to revive the sector if government and other stakeholders could lure the informal sector to deposit its money in financial institutions.

More than five million people are employed in the informal sector, according to FinScope. If this sector were to be formalised and employees paid modest sums of tax by way of Pay as you Earn (PAYE), there would be great improvements in Treasury’s revenue generation. For instance, if all employees in the informal sector were to contribute an average of $5 in PAYE per month, that means the fiscus would be more than $25 million richer every month.

Formalisation of the sector would also help rid the labour sector of the prevailing rampant abuses associated with unregistered small to medium enterprises, as employers would be obligated to adhere to employment rules.

Be that as it may, government must also take a second and decisive look at conditions that are enabling current tax leakages. It also needs to adopt more effective ways of dealing with corruption at institutions like the Zimbabwe Revenue Authority, the Immigration Department and the police whose officers connive with both informal and formal businesses to evade taxation in exchange for bribes.

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