via ‘Raiding SMEs over taxation will only motivate evasion July 14, 2014
GOVERNMENT’S clampdown on small to medium enterprises (SMEs) for taxation purposes will adversely affect the sector and only motivate evasion, the sector’s umbrella body has warned.
The warning followed the Zimbabwe Revenue Authority’s (Zimra) clampdown after being put under increasing pressure by Treasury to squeeze as much revenue from companies, as government seeks to consolidate its revenue base.
A number of people operating in the SME sector were running businesses out of necessity rather than opportunity as soaring unemployment and continued company closures remained unabated.
SME Association of Zimbabwe chairperson Farai Mutambanengwe told NewsDay last week that government’s focus should be formulating and implementing policies that foster growth of the sector, so as to widen government’s revenue base.
“Basically people have to be tax compliant. The problem with the [Zimra] approach is that it is more of a knee- jerk reaction rather than a strategy to incorporate SMEs and the informal sector into the formal sector,” he said.
He said there should be mechanisms put in place on how to get the sector to be compliant and make it contribute more meaningfully to the fiscus.
“Everyone in the sector is struggling. The SME sector feeds off huge corporates and governments and if these do not do well this has an adverse impact on SMEs,” Mutambanengwe said.
Government’s high debt at $9,9 billion was largely attributed by analysts as a major factor hampering the inflow of foreign direct investments.
Mutambanengwe said tax was usually levied on profits and there were hardly a significant number of small businesses in the country making profits in the economy facing a liquidity crunch.
“There is a minimum level of income that should qualify for taxation of small businesses or individuals. All of that is being disregarded,” he said.
Under Zimra’s tax regime, SMEs were granted 50% special initial allowance in the first year and 25% in each of the next two years of assessment.
This allowance was an incentive primarily designed to enhance their growth rate and to attract micro enterprises to formalise their transactions.
Additionally, any SME could claim 100% special initial allowance on expenditure incurred on the construction of new industrial buildings, farm improvements, railway lines, staff housing and tobacco barns.
Articles, implements, machinery and utensils purchased for purposes of trade also qualify for special initial allowance.
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