In a decisive move to formalize Zimbabwe’s predominantly informal economy and enhance fiscal revenue collection, the government has mandated the compulsory use of electronic money for all businesses. This directive, approved by the Cabinet, aims to integrate informal sector operations into the formal economy, ensuring comprehensive tax compliance and economic stability.
Mandating Electronic Transactions
Information Minister Jenfan Muswere announced the new policy during a post-Cabinet briefing, emphasizing that the adoption of electronic payments is a short-term measure designed to address challenges in the formal business environment. The government intends to implement a compulsory tax payment system to ensure that every eligible taxpayer fulfills their tax obligations. To oversee this initiative, a Domestic Inter-agency Team will be established to monitor and enforce compliance, particularly within the informal sector.
Impact on the Informal Sector
The informal sector plays a significant role in Zimbabwe’s economy, contributing approximately 65% to the Gross Domestic Product (GDP) and employing a substantial portion of the workforce. However, its informal nature has led to considerable revenue losses, with the country estimated to have forfeited over US$1.15 billion in potential fiscal revenue between 2020 and 2023. By mandating electronic transactions, the government aims to bring these businesses into the tax net, thereby leveling the playing field for formal enterprises and enhancing revenue collection.
Requirements for Businesses
Under the new policy, all vendors are required to register with local authorities, open bank accounts, and acquire Point of Sale (POS) machines upon registration or licensing. This move is intended to facilitate seamless electronic transactions and ensure that all business activities are transparent and traceable. The government has also pledged to streamline business fees and levies, reduce duplication of functions among government departments, and improve electricity supply to support these enterprises in transitioning to formal operations.
Challenges and Criticisms
While the policy aims to modernize payment systems and improve tax collection, it has faced criticism regarding its implementation and potential impact on small-scale businesses. Critics argue that mandating electronic payments may inadvertently exclude segments of the informal sector that lack access to banking services, reliable electricity, or necessary technology such as smartphones and POS machines. Additionally, the cost of compliance, including purchasing POS machines and maintaining bank accounts, could impose financial burdens on small vendors, potentially destabilizing existing businesses.
Government’s Response
In response to these concerns, the government has committed to providing adequate infrastructure, education, and technological support to assist businesses in adapting to electronic payments. Efforts are underway to ensure that marginalized populations engaged in informal trading are not economically disenfranchised. The success of this policy will largely depend on the government’s ability to implement these support measures effectively and create an environment conducive to the formalization of informal businesses.
Conclusion
Zimbabwe’s mandate for compulsory electronic transactions represents a significant shift in the country’s economic policy, aiming to formalize the informal sector and enhance tax compliance. While the policy has noble intentions, its success will depend on thoughtful implementation, addressing infrastructural challenges, and providing support to small businesses to ensure inclusive economic growth.
