Informal traders in big trouble as Mthuli Ncube introduces new policies: Everyone to use swipe machines, Gvt to confiscate more goods

In a bold move to address the growing informalisation of Zimbabwe’s economy, Finance and Economic Development Minister Mthuli Ncube has announced a series of new measures aimed at promoting formalisation and tax compliance.

The announcement follows a high-level meeting chaired by President Emmerson Mnangagwa, who cut short his annual leave to discuss the state of the economy and map out a way forward.

The meeting, which included the two Vice Presidents and all Economic Ministries, focused on the challenges posed by the informal sector, particularly in the retail and wholesale industries. Despite strong economic growth averaging 5.5% annually since 2021, the economy has shown signs of slowing down, with a 2% decline recorded in 2024 due to the El Niño-induced drought. This drought has severely impacted agricultural production and electricity generation, with ripple effects across other sectors.

The Rise of Informality

One of the key concerns raised during the meeting was the increasing informalisation of the economy. Since the beginning of 2023, some manufacturers have been bypassing formal wholesalers and retailers, opting instead to supply goods directly to customers and informal traders. This trend has placed formal businesses at a disadvantage, as informal traders often operate outside regulatory frameworks, avoiding taxes, licence fees, and labour laws.

“This situation has compromised the operations of the formal wholesalers and retailers, as they are competing with informal traders, who are operating outside compliance with regulations such as taxes, licence fees, and labour laws, among other formalities,” Ncube stated.

Current Measures to Promote Formalisation

To address these challenges, the government has already implemented several measures through the 2024 Mid-Term Budget and Economic Review, as well as the 2025 National Budget. These include:

1. Withholding Tax for MSMEs: A 5% withholding tax has been introduced for non-registered Micro and Small Enterprises (MSMEs), payable to wholesalers and manufacturers.
2. Reduced VAT Threshold: The VAT registration threshold has been reduced from US$$toUS\$$25,000 to encourage more businesses to formalise.
3. Deemed Smuggled Products: Certain goods, such as alcoholic and non-alcoholic beverages, dairy products, washing powder, detergents, and sugar, are now deemed smuggled unless sellers provide proof of customs duty payment.
4. Taxation of Emerging Sectors: Additional sectors have been added to the list of businesses required to register for tax purposes.
5. Point-of-Sale Machines: MSMEs are now required to use point-of-sale machines and operate bank accounts linked to the Zimbabwe Revenue Authority (ZIMRA).
6. Tax Administration Automation: The introduction of the Tax and Revenue Management System (TaRMS) and the Fiscalisation Data Management System (FDMS) aims to streamline tax administration.
7. Targeted Finance Facility: The Reserve Bank of Zimbabwe has launched the Targeted Finance Facility (TFF) to provide working capital to the productive and retail sectors.

Additional Measures Proposed

While these measures have made some progress, the government acknowledges that more needs to be done. In consultation with business and industry stakeholders, as well as the Ministry of Industry and Commerce, the following additional measures have been proposed:

1. Mandatory Use of Point-of-Sale Machines: All informal traders will be required to use point-of-sale machines for transactions.
2. Adoption of International Best Practices: The government will ensure that every eligible taxpayer complies with tax regulations, following international best practices.
3. Levelling the Playing Field: Manufacturers will be discouraged from supplying goods directly to end-users and informal markets to create a fairer competitive environment.
4. Domestic Interagency Enforcement Team: A dedicated team will be established to enforce compliance within the informal sector.
5. Collaboration Between Local and Central Government: Local authorities will work closely with central government to streamline licencing and enforcement processes.

Further Initiatives

In addition to the above, the Reserve Bank of Zimbabwe will announce further measures through its Monetary Policy Statement to enhance market formalisation. The government also plans to streamline regulatory processes, fees, and charges to reduce the cost of doing business and eliminate duplication of work by government agencies.

Other measures include:

6. Enforcement of Reserved Sectors: The provisions of the Indigenisation and Economic Empowerment Act, which designate certain sectors as reserved for locals, will be strictly enforced.
7. Industrialisation Fund Incentives: Additional incentives will be provided through the Industrialisation Fund to support local industry, complementing existing initiatives such as duty-free imports and Special Economic Zones incentives.
8. Promotion of Local Procurement: Government procurement will prioritise goods and services from local producers and suppliers to bolster domestic industries.

A Commitment to Vision 2030

In his concluding remarks, Minister Ncube reiterated the government’s commitment to improving the business environment and curbing the informalisation of the economy. “Government is committed to improving the business environment, in order to curb the informalisation of the economy, as we move towards Vision 2030,” he said.

The Informal Economy: A Double-Edged Sword

The informal economy in Zimbabwe has long been a significant part of the country’s economic landscape. With estimates suggesting that over 90% of the workforce is engaged in informal activities, this sector plays a crucial role in job creation and income generation. However, the lack of regulation, oversight, and taxation has led to the introduction of a mandatory tax targeting this segment of the economy by the Zimbabwean government.

In the 2025 budget, the Treasury introduced several tax reforms to bring the informal economy into the national tax bracket. It is now mandatory for informal economy players to maintain proper financial records and ensure that the same are submitted to the Zimbabwe Revenue Authority (ZIMRA).

Mixed Reactions to the Mandatory Tax

The introduction of a mandatory tax on the informal economy in Zimbabwe stems from the government’s need to broaden its tax base, especially in the face of economic challenges and a shrinking formal sector. The tax aims to generate revenue that can be used to fund public services and infrastructure, which have been severely impacted by years of economic instability.

However, the implementation of this tax has been met with mixed reactions. Critics argue that taxing informal businesses may aggravate their challenges, pushing them further into the shadows of the economy. Many informal operators lack the capacity to comply with tax obligations, and the imposition of taxes without adequate support could lead to business closures and job losses. This scenario raises crucial questions about the fairness and efficacy of the tax system and its potential impact on the livelihoods of millions of Zimbabweans.

Ensuring Transparency and Accountability

To ensure that the revenue generated from the mandatory tax is managed transparently and accountably, several measures can be implemented. These include:

1. Public Disclosure of Tax Revenues: The government should regularly publish detailed reports on the amount of revenue collected from the informal sector and how it is being utilised.
2. Stakeholder Engagement: Involving informal sector representatives in the decision-making process can help address their concerns and ensure that the tax system is fair and equitable.
3. Capacity Building: Providing training and support to informal businesses to help them comply with tax obligations can reduce the burden and improve compliance rates.
4. Monitoring and Evaluation: Establishing robust mechanisms to monitor the implementation and impact of the tax can help identify and address any issues that arise.

Conclusion

The new measures announced by the government represent a comprehensive approach to addressing the challenges posed by the informal sector. By promoting formalisation, enhancing tax compliance, and supporting local industries, the government aims to create a more equitable and sustainable economic environment.

However, the success of these initiatives will depend on effective implementation and collaboration between the government, businesses, and other stakeholders. As Zimbabwe continues its journey towards Vision 2030, these measures could play a crucial role in ensuring long-term economic stability and growth.