English

Y Sebele Mpofu Favourate

doi:10.5897/jat2021.0469

Abstract

Domestic revenue generation occupies a central domain in most countries, leading to continuous mapping of strategies towards its enhancement. Taxation is a dependable and foreseeable avenue to generate revenue for governments to fulfil their key obligations of employment creation, economic growth and infrastructural development, poverty reduction and state security. Despite these plausible arguments, tax revenues are minimal and tax bases narrow in developing countries. Contemporary tax debates point out that informal sector represents a lucrative fountain of tax revenue for governments, yet opponents of taxing the sector suggest that taxation might cripple small firms. Zimbabwe introduced presumptive tax in 2005, further enforcing to expand the tax base by including the sector into the tax basket in 2011. Researchers have focused on tax evasion and non-tax compliance when studying this sector, this paper focuses on the stakeholders perceptions on the impact of informal sector taxation on revenue generation and growth. This study adopted a sequential exploratory mixed method approach, argued to be ideal for under-researched areas such as this one. Key findings were that the current one size fit all tax framework suffocates small firms. Governments have to strike a balance between revenue mobilisation and the sector’s key economic contributions, without crippling informal firms.   Key words: Informal sector, taxation, growth, stifling, revenue mobilisation.

Highlights

Despite taxation being administered with several objectives such as to reduce market externalities, help government and citizens engage, stimulate economic growth and support the growth of firms, participants highlighted that these were not prioritised by government
Number of employees expansive tax base or hindering the growth of small firms or both? could be disparate depending on the contextual environments
In Zimbabwe, this study concludes that the Informal Sector (IS) taxation framework in its current state has not resulted in a meaningful expanded tax base but instead it could be crippling the IS operations, increasing tax evasions and compounding SMEs‟ mortality rates, as expressed in the opinions of stakeholders interviewed

Summary

Introduction

Developing countries introduced presumptive taxes to widen the tax base, bring the non-paying IS into the tax net and address equity consideration These efforts have been argued to be unsuccessful and faced with considerable hindrances impeding effective taxation of this sector. Tax revenues from this sector are argued to be very inconsequential and worryingly low in comparison with the sector‟s magnitude and contribution to GDP (Ligomeka 2019; Maina, 2017). While the subject of informal sector taxation has goaded considerable attention, this has not been without controversy

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