The Reserve Bank of Zimbabwe (RBZ) is mulling an incentive structure for the informal sector to formalise amid rising levels of informalisation in the market due to punitive taxes and a lack of monetary policies that encourage formal sector growth.
The development comes after the formal retailers complained that the untaxed informal sector is choking their operations due to their unfair advantage such as not being vulnerable to forex retention thresholds.
But RBZ governor John Mangudya told Business Times that despite high levels of informalisation the hard currency still finds its way to formal channels as informal traders pay for goods and services in the mainstream economy.
“At the moment there are more benefits for the informal sector to remain like that but there is a need to improve the environment for them to become formal. I believe incentives for the informal sector will encourage them to become formal businesses.
“We have to come up with an incentive structure that encourages the informal sector to be registered and operate formally,” Mangudya said.
Retailers said they are left on the edge as the manufacturers have cut supplies of basic commodities to tuck shops that pay in hard currency.
“Though we now sell in US$, the informal sector still has an edge as they don’t have the 15% surrender requirement and taxes among other impediments.
“Suppliers still favour the informal as cash is preferred as it has no taxes and extra costs like bank charges. We would like the authorities to reduce taxes on formal traders and incentives to the informal sector to encourage formalisation of the economy,” Confederation of Zimbabwe Retailers president Denford Mutashu told Business Times.
Manufacturers supply a 30-tonne truck per month to the formal sector with tuck shops giving as many trucks as they want to depending on the cash they have.
Retailers said they are in a catch-22 after the central bank directed formal shops to sell their goods at a premium of 10% above the official rate.
Mangudya said the authorities are attending to the informalisation nature of the economy which has surpassed 65%.
“The informal sector does not produce goods and services as it thrives on goods produced by the industry. They sell cooking oil, sugar, and washing powder among other goods which they get from manufacturers.
“I disagree with the notion that the informal sector is benefitting at the expense of the formal as it acquires goods from the registered companies. The manufacturers who produce will take money back into the banking channels and the nation will benefit,” Mangudya said.
He added: “People don’t understand that the informal sector does not operate in a vacuum but operates in a business space where they transact with the formal businesses. Informal traders have school children they sent to school and they have some goods and services they pay for hence they use that money to bring it to the formal banking channels.”
Mangudya said Glen View furniture producers procure timber, nails, and fabric from formal traders hence that money will be banked in the formal sector.
The Treasury put in place the Intermediated Money Transfer Tax which is a tax chargeable on financial transactions which happen through transfers such as direct debits, online transfers, mobile money transfers, supplier payments, and interbank transfers subject to specified exemptions.