Abstract
The main focus of the study was to ascertain the potential of the informal sector to provide much-needed revenue for the government. It also focused on the challenges faced in informal sector revenue taxation and possible solutions thereof. The Zimbabwe revenue authority has maintained presumptive tax for the sector and subcontracting to the city of Harare for the collection of revenue from the informal sector. Despite all this, the industry still underperformed in terms of revenue raised. The study sought to find out challenges of taxing the informal sector, the potential of the informal sector, the effectiveness of the Zimbabwe revenue authority in taxing the informal sector, and possible ways of improving the taxing of this rampant sector. The study found out that there is great potential from the informal sector, but turning it into tangible gains has been elusive due to political interference, lack of proper infrastructure, unfair application of tax laws and general mistrust of the government. The study recommended that the government ought to play an active role by making sure there is the political will to make sure that players in the informal sector contribute to the focus in line with Adam Smith’s general principles which include fairness and equity. There is a need for staffing levels to be commensurate with the workloads and also the motivation of the employees. The research also recommended the adaptation of Information Communication Technology to ensure accountability and traceability of transactions in the informal sector as they move away from a cash-based system recommendation.
Highlights
Income from taxes supports the essential services of governments, and the need to raise revenue domestically always generated much interest virtually in every country (Munjeyi, 2017)
The researcher was able to ask questions as to why the informal sector is not performing as expected in terms of revenue generation, and what are the challenges of informal sector tax administration in ZIMRA? The research used the embedded case study approach in line with Saunders, Lewis and Thornhill (2009)
The study results indicate that the informal sector plays a role of increasing the pace of innovation acquisition with a mean score of 3.5543 and a standard deviation of 0.58678 and it corresponds with Araujo-Bonjean and Chambas (2005)
Summary
Income from taxes supports the essential services of governments, and the need to raise revenue domestically always generated much interest virtually in every country (Munjeyi, 2017). The challenges for the African economies are that income from broad-based taxation is below the minimum global rate of 15% of GDP (Mascagni, Moore & McCluskey, 2014). This leads to focus on the rampant informal sector in Africa which is taking up a significant portion of GDP but has seemingly failed to fill the gap in terms of revenue contribution through taxation Dube (2014). Despite the size of the informal sector in Africa and Zimbabwe, in particular, the industry remains the least taxed. Despite having the large informal sector, has little to show in terms of revenue from the industry (ZIMRA, 2019). The meager contribution of the informal sector to taxation calls for research as to the challenges being faced by Zimbabwe in this area
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