SMEs frown at the taxman, local authorities

Source: SMEs frown at the taxman, local authorities | The Sunday Mail June 26, 2016

SMALL and Medium Enterprises (SMEs), who are estimated by the World Bank to employ more than 5,7 million locals; are disenchanted by the treatment they receive from local authorities — the National Social Security Authority (NSSA) and the Zimbabwe Revenue Authority (Zimra). While as fledgling businesses they expect to be granted concessions, SMEs feel they are being tied to the same conditions that are expected of big business.

Most of the enterprises are laden with punitive levies, fees and excise duties that make their operations onerous. Most SMEs that spoke to The Sunday Mail Business last week said the incentive of not registering companies was far more rewarding than having them registered.

In an environment where most of them are not given a helping hand by Government, they are naturally eclipsed by big enterprises that rely mostly on economies of scale.

As a result, some small businesses are gradually abandoning brick-and-mortar shops in order to avoid the nuisance of ever-demanding statutory bodies.

Last week, the Zimbabwe National Cooperative Federation — which represents various SME sectors including housing, transport, agriculture, savings and credit, security and services, arts and crafts and manufacturing – appraised SMEs and Co-operative Development Minister Sithembiso Nyoni of the challenges that they are currently facing.

SMEs that are involved in land development generally feel that they are treated harshly when buying land. In fact, head of the housing cluster, Mr Never Karombo says SMEs — the bulk of which cater for low-income earners — pay double the cost for land compared to institutional investors.

“Co-operatives are charged between $4 and $8 per square metre for the land intrinsic value while banks and other big companies are charged US50c. I don’t know how this happens because as SMEs we don’t have as much resources as the bigger companies,” said Mr Karoro.

Just as local businesses are grappling with municipalities, those in the transport cluster have to contend with high excise duties from Zimra, particularly when they have to replenish their fleet.

Registration fees from city councils are also high. Mr Fanuel Chakawa, who represents the transport cluster, said there is need for Government to ensure that they were charged fair excise duty. Fees and permits charged by local authorities, he said, have to be slashed.

There isn’t any respite for those in the arts and crafts either as industry players are finding the high export taxes a huge disincentive. It is believed that there is a growing market for granite tombstones in countries such as the DRC, Angola and Malawi.

But the high costs of exporting the product has reduced the country to a predominantly source market for granite. “This has turned Zimbabwe into an exporter of the granite raw material when we can add value to it and get more money from exporting value added products.

“We feel that if the export tax was reduced, Government can make money out of this cluster,” said Mr Dorsen Mwashita who represents the industry. In West Africa, handicrafts contribute about 25 percent to total economic output

Government is currently preoccupied with promoting industries that are involved in value addition. But there is growing concern that Zimra is increasingly becoming an agent that is working against SMEs rather than promoting them. It is widely believed that they are largely favouring the stick approach as opposed to the carrot approach when dealing with small businesses.

Miss Kudzai Chikowore, the owner of Gatelect Marketing, a Gweru-based SME, said Government and municipalities need to rationalise their charges. Her businesses mainly rely on imports, which attracts excise duty.

“When I import products, I declare them commercially at the border posts. But as SMEs, I feel Zimra should differentiate us from the established players such as large supermarket chains.

“For instance, when I import goods worth 20 000 rands, I end up paying duty of about 8 000 rands and most of my profit end up taken up. These big shops just import in containers and may just pay for a few of the parcels, giving them the edge over us in terms of prices.

“We are supposed to compete with the big guys but their prices are already too low and we are forced out of business. Such duty charges result in SMEs abandoning their shops and flooding the streets where they don’t pay taxes,” said Miss Chikowore in a recent interview. She also said the high cost of formalising businesses is discouraging investment.

“I try my best to settle my obligations with Zimra, you can go and check my record. We don’t want to operate for free but we feel they should reduce the costs for young and growing companies.

“It seems as if registering a company is a crime in this country because the moment you do so, Zimra descends on you heavily. Those that comply are persecuted by Zimra more than those that operate illegally,” she added.

In addition to high excise duty, Gatelect Marketing shells out a fortune for a shop licence from the Gweru City Council. In Gweru, it costs $649 to obtain a shop license. The charge is universal irrespective of the scale at which the applicant operates.

It is also impossible to operate a tax licence without a tax clearance certificate from Zimra. Considering such a difficult operating environment, it is therefore unsurprising that the 2012 World Bank survey indicated that only 15 percent of SMEs were registered.

At the time, 85 percent of small businesses were in regulatory default by failure to be registered. Last week, Minister Nyoni told The Sunday Mail Business that the cost of doing businesses, especially for SMEs, was very high. She said SMEs cannot should not be milked as cash-cows by Zimra, NSSA and municipalities.

“We are meeting Zimra in the next few days to discuss the issue of high costs of doing business that are affecting the operations of SMEs. But also there is an Act (Companies Act) that is being revised to improve the ease of doing business in Zimbabwe.

“The revision of the Act focuses on the high fees of registration, excise duty and so forth so I think that is being attended to under the Ministry of Justice. But we are not really in favour of people just exploiting the SMEs.

“They want SMEs to just pay for services that they have not delivered, it is wrong, it is not fair. This is why we are going sector by sector so that if the ministries understand, and the big businesses understand that if we all assist SMEs, we would make more money than we are doing right now,” said Minister Nyoni.

The minister has previously pleaded with Zimra to craft packages that suit SMEs so that they remain viable. Zimra had not responded to emailed questions by the time of going to print.

A special team, led by officials from the Office of the President and Cabinet, is seized with improving the doing business environment in the country.