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 the informal economy players to maintain proper financial records and ensure that the same are submitted to the Zimbabwe Revenue Authority (Zimra).
This article reconnoitres the implications of this tax, as well as alternatives and policy options to ensure transparency and accountability in the management of the collected funds.
Furthermore, it analyses how these funds can be utilised to support the informal economy in its drive for formalisation, in line with the International Labour Organisation (ILO) Recommendation 204 of 2015.
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.
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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.
To ensure that the revenue generated from the mandatory tax is managed transparently and accountably, several measures can be implemented.
Firstly, there is need for the establishment of a dedicated Fund. A specific fund could be created to manage the revenue generated from the informal economy tax.
This fund should be separate from the general revenue fund, with clearly defined objectives and accountability mechanisms.
Secondly, there is need to institute and maintain public reporting and audits. Regular public reports detailing the income generated from the tax and how it is spent can help maintain transparency.
Independent audits should be conducted to ensure that funds are being used as intended.
Thirdly, robust stakeholder engagement platforms must be set up and sustained.
Engaging stakeholders, including representatives from the informal economy, civil society organisations, and labour unions, can enhance accountability.
Their input can help shape how funds are allocated and ensure that the needs of informal workers are met.
Lastly, digital transparency platforms must be set up. Leveraging technology to create online platforms where citizens can track the allocation and use of funds could foster accountability. These platforms can also serve as channels for feedback and suggestions from informal workers and other key players in the informal economy ecosystem.
While the mandatory tax aims to generate revenue, it is crucial that the funds collected are used to support the informal economy and encourage its formalisation.
This article proposes the following several policy options that can be explored by the authorities both at a micro and macro levels.
Microfinance and access to credit: One of the major barriers to formalisation for informal businesses is access to finance.
Policy initiatives could focus on creating microfinance programs that cater specifically to informal operators, providing them with the capital needed to grow and formalise their businesses.
- Business development services: The government could invest in providing business development services, including training and mentorship programmes. These services would help informal entrepreneurs acquire the skills needed to manage their businesses effectively and comply with formal regulations.
- Simplified registration processes: Streamlining the business registration process can encourage informal operators to formalise their businesses. Policies could be introduced to reduce the bureaucratic hurdles and costs associated with registration, making it more accessible for informal workers.
- Tax incentives for formalisation: Introducing tax incentives for businesses that transition from the informal to the formal sector can encourage compliance and formalisation. These incentives could include reduced tax rates for a limited period or exemptions for small businesses.
- Access to social protection: One of the key recommendations of the ILO’s Recommendation 204 is the need for social protection for informal workers. Policies should be developed to extend social security benefits to informal workers, including health insurance, retirement benefits, and unemployment support.
- Support for informal economy associations and groups: Encouraging the formation of associations and solidarity groups among informal workers can enhance their bargaining power and provide them with better access to resources, markets, and financing. Policies can be tailored to support associations’ development and sustainability.
Alignment with the International Labour Organisation (ILO) Recommendation 204 of 2015
The ILO Recommendation 204 emphasises the need for governments to recognise the importance of the informal economy and to adopt policies that support its transition to the formal sector.
The recommendation highlights the need for comprehensive strategies that include social protection, decent work, and the promotion of entrepreneurship.
The need for inclusive dialogue between governments, employers, and workers to ensure that policies are responsive to the needs of informal workers.
Furthermore, fostering investment in education and training to equip informal workers with the skills necessary to thrive in the formal economy.
By adopting these principles, the Zimbabwean government can ensure that the funds raised from the mandatory tax are used effectively to support the informal economy, facilitating its growth and integration into the formal sector.
Conclusion
The introduction of a mandatory tax targeting the informal economy in Zimbabwe presents both challenges and opportunities. While it aims to increase government revenue, careful consideration must be given to how the funds are managed and utilised.
By implementing measures to ensure transparency and accountability, and by adopting supportive policies that align with the ILO Recommendation 204 that was adopted in 2015, the government can create an environment that fosters the formalisation of the informal economy.
Ultimately, such efforts can contribute to sustainable economic growth, improved livelihoods for millions of Zimbabweans, and a more inclusive society.
*Samuel Wadzai is an informal economy expert and currently the executive director for the Vendors Initiative for Social and Economic Transformation (VISET) Feedback: Email address: swadzai@visetonline.org. These weekly articles are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consulants (Private) Limited, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe. Email- kadenge.zes@gmail.com and Mobile No. +263 772 382 852
