Abstract
Zimbabwe solely depends on revenue targets formulated by the Ministry of Finance and Economic Development for the measurement of performance of the Zimbabwe Revenue Authority. The trend for this development is to rely on estimating the tax gap which is the difference between potential and actual collections. The study employed a quantitative research design and analysis of the major causes of reduction in tax revenue resulting especially from the envisaged high tax rates in Zimbabwe. A sample of 300 was targeted by the researchers from a population of 1700. This was stratified to 220 formally employed and 80 informally employed based on the ratio of 73% of gainfully employed in the formal sector. The findings of the study revel that the Zimbabwe Revenue Authority is not facing as much of a challenge when considering the overall effect of each of the four identified factors, that is, tax avoidance and evasion; corruption by employees of the revenue authority; inefficient and ineffective tax administration, and increased informal employment. However, regression analysis revealed that the most significant factor that weighs down tax revenue collectability is the continuous fall in the formal employment, as more workers lose their jobs and join the informal sector. The factor accounted for 25.7% of the total variance and the effect on revenue collectability was calculated at p-value =.001 which is less than 0.05. While individuals in the informal sector of the economy of Zimbabwe may actually be making more money than those formally employed there might be a lack of a system to allow for collection of taxes in the growing informal sector. The study recommends that the Zimbabwe Revenue Authority increases its efforts towards widening the tax base by designing a tax regime that will help the fiscus to tape into the informal sector`s economic activity in the country. This may be achieved through co-operation with financial sector institutions such as banks as they embark on an effort to deal with the challenge of financial exclusion in the economy. For example, as the banking sector considers offering financing packages to the informal sector, formalisation of the sector should be insisted as a condition for potential funding.
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