LOCAL industry is proposing that government offers tax holidays for small- to-medium enterprises (SMEs) to help grow the sector that has become the backbone of the economy.
BY MTHANDAZO NYONI
Zimbabwe National Chamber of Commerce Bulawayo branch chairman Golden Muoni told Standardbusiness last week that they were pushing government for the tax holidays.
A tax holiday is a temporary reduction or exemption of tax. Governments give tax holidays as incentives to investors and businesses.
“We are pushing for tax holidays. At a higher level we are supposed to engage through the Ministry of Finance, through Parliament to say, look going forward, the tax holidays are needed for this economy, especially for SMEs,” Muoni said.
“The tax holidays, which people are always pushing for benefit only foreign direct investors and big conglomerates.
“To me, it doesn’t help us as a business or as an economy. Why can’t we just look internally and give holidays to the SMEs as well?”
Muoni said the last time government rolled out these holidays was in the 1990s when BHP was given a five-year tax reprieve but they still packed their bags at the expiry of the holiday.
“They disappeared. So to me it is more beneficial to offer a local company or investor a tax holiday since it is based here and will not think of running away after the offer. So, it benefits us as a people and as an economy,” he said.
“Why are we not looking at offering them as well? Why not also look into their plan to say how do we grow them, how do we help them to grow the business? If we do that in the long term, I tell you, we will be a great country.”
A FinScope SME survey carried out in the last quarter of 2012 indicated that 2,8 million people in the informal sector were business owners.
The survey noted that the sector contributed 60% to the gross domestic product and employs 2,9 million people, which is over 50% of the country’s labour force.
However, the body noted that Zimbabwe’s SMEs were facing several challenges, which included poor technological capacity to keep pace with the changing dynamics of local and international trade.
They also faced challenges of intensified competition in domestic, regional and global markets, a rapidly shrinking domestic market and limited participation in global value chains.
Muoni said there could be no talk of growing the economy if there was no movement and meaningful growth of SMEs.
“So I think there is need for us to engage the Zimbabwe Revenue Authority (Zimra) and obviously, Zimra won’t be able to adequately answer those questions.
“It will required to go through Parliament and I think we have to write to the Speaker of Parliament about it.
“It’s a process and we as a chamber will need to advocate for that.
“This is what we want and then we have to meet Parliament, give reasons and try to move for that to be done,” he said.
“But if the focus is only to give (tax holidays to) foreign investors overlooking our own local investors, then we are not going anywhere.”
Zimbabwe Chamber of Informal Economy Association secretary-general Wisborn Malaya said it was important for government to support SMEs as they had become the mainstay of the economy.
“With this new dispensation we have seen the efforts to revive the economy, but the gap is still there,” he said.
“Government is yet to fully recognise the existence of the informal sector. It still undermines SMEs and this is a serious issue.”
Malaya said the government should first give priority to SMEs under the special economic zones (SEZs) policy.
He said the crafting of such a policy should have had input from SMEs.
Economic analyst Reginald Shoko, however, said SEZs by implementation would be open to any investor and SMEs should take advantage of the benefits from these tax holidays.
“It’s prudent that the government ring-fences certain sectors in those SEZs for our resilient SMEs that have kept the economy ticking through the difficult periods,” he said.
“SEZs favourable conditions will bring a lot of competition, which the local enterprises will not be able to bear so government must also provide cheap loans for SMEs in preparation for global competition that comes with SEZs.”
Economist John Robertson said costs were incurred in registering and obtaining business licences and yet small business players might need six or more business licences.
“The SMEs also have to generate a set of accounts so that claimed costs, revenues, profits or losses, dealings with other companies, whether suppliers or customers, can be proved to the tax authorities who will want employee taxes and value-added tax (VAT) payments every month,” he said.
“They would also require to record predictions and payments of estimated profits, the taxes paid every quarter and many other trading transactions including dividend taxes if the company hopes to get VAT refunds.”
For a small start-up, Robertson said, these payments become a burden forcing the small operators to remain informal and as invisible as possible to the authorities.
“Government and the municipalities need to revise their entire thinking and concentrate instead on finding ways to assist small ventures in ways that offer them advantages and incentives, rather than difficulties, costs and severe penalties for daring to become incorporated, registered, tax-paying and job-creating businesses,” he said.
In a bid to encourage SMEs to register their operations, government in 2016 issued a six-month moratorium on penalties for non-compliant small and medium-sized enterprises that were eligible for tax registration before January last year.
Following the initiative, about 12 992 SMEs complied with a directive by Zimra to register for tax purposes by June 30, 2018.