The Struggle for Economic Revival in Zimbabwe
The current focus of the government on constitutional amendments has raised concerns among industry players who feel their urgent needs are being overlooked. At a time when the economy is in dire need of solutions, the attention of policymakers is diverted towards legal changes, leaving businesses to fend for themselves.
Formal industry bodies have repeatedly presented their concerns to the authorities regarding the high taxes and levies that burden businesses. These include the Intermediated Money Transfer Tax (IMTT), which many argue is too high and pushes businesses into the informal sector. Despite these complaints, the government continues to impose new taxes on the formal sector, further complicating the situation.
The informal sector plays a significant role in Zimbabwe’s economy, controlling around 76% of revenue circulating in the country. However, very few participants in this sector contribute to the national fiscus through taxes. This has led the government to target the formal sector with additional taxes, creating a cycle of economic hardship.
Challenges Faced by Formal Businesses
The operating environment for formal businesses has become increasingly difficult, leading to closures and financial distress. For example, Choppies Supermarket has closed its doors, while TM Pick n Pay’s South African parent company has written off its investment in Zimbabwe due to persistent losses. OK Zimbabwe, one of the country’s largest retail chains, remains in a state of stagnation despite recent executive changes.
The informal sector’s dominance is evident in towns across the country, where vendors sell products at supermarket entrances. These traders operate without the burden of taxes or statutory levies, often smuggling goods into the country and avoiding duties. This creates an unfair competitive landscape for formal businesses, which are forced to comply with regulations and pay taxes, ultimately leading to higher costs and reduced competitiveness.
The Impact on Employment and the Economy
The closure of major formal businesses has severe consequences for employment and the broader economy. These companies often employ a significant number of people, and their decline leads to job losses and financial instability for affected families. Industry representatives have approached the government multiple times to address these issues, but their pleas have largely gone unheard.
In response to these challenges, the Zimbabwe National Chamber of Commerce, Confederation of Zimbabwe Industries, and the Confederation of Zimbabwe Retailers have urged Finance, Economic Planning and Investment Minister Mthuli Ncube to reconsider the tax system. While Ncube made a minor adjustment to the IMTT for Zimbabwe Gold transactions, he did not address the issue of unfair competition from informal traders.
New Taxes and Their Consequences
New taxes, such as the sugar tax introduced in January 2024, have added to the burden on businesses. Initially set at US$0.002 per gramme of sugar, the tax was later reduced to US$0.001 per gramme. Beverage manufacturers have voiced strong opposition to this tax, fearing it will significantly impact their earnings.
The IMTT also poses a threat to the government’s efforts to promote financial inclusion. As more people avoid electronic transactions due to the fear of taxes and other charges, the use of cash becomes more prevalent. This trend undermines the government’s digital initiatives and hampers economic growth.
The Role of the Mutapa Investment Fund
The government’s reliance on taxation as a primary source of revenue is evident in the increased Value-Added Tax to 15.5% during the presentation of the 2026 national budget. This move was intended to offset the reduction in IMTT, highlighting the government’s dependence on taxes despite running 107 entities under the Mutapa Investment Fund (MIF).
The operations of the MIF remain unclear, and previous failures of state-owned enterprises (SOEs) have been attributed to poor governance, financial mismanagement, and corruption. The collapse of entities like the Cold Storage Company and the struggles at the National Railways of Zimbabwe underscore these challenges.
The Need for Diversification
Taxation should not be the sole source of government revenue. The current system acts as a barrier for investors, particularly given the country’s repatriation laws. With global trends moving towards digitalization and artificial intelligence, the imposition of a 15% digital services withholding tax on foreign entities is counterproductive.
The Importance of Mining and the Problem of Smuggling
Mining, especially gold, contributes significantly to Zimbabwe’s export earnings and GDP. Small-scale and artisanal miners play a crucial role in this sector, delivering to companies like Fidelity Printers and Refiners. However, the smuggling of gold and other minerals out of the country results in substantial losses, estimated at nearly US$1 billion annually.
The Democratic Official Party has consistently proposed ideas for economic revival, but it appears that Zanu PF is proceeding independently, potentially harming the wider population and the economy.
Conclusion
The government must consider diverse perspectives and allow fresh ideas to shape economic policies. The future of Zimbabwe depends on addressing these challenges and creating a fairer, more sustainable economic environment.
