Alternative SMEs taxation models

Alternative SMEs taxation models
Published: 02 August 2017
THERE is no doubt that small to medium enterprises (SMEs) are fast becoming a key economic pillar not only in Zimbabwe but globally. No government today will ignore the interests of this promising sector, more so at a time when big corporates are facing viability challenges in the face of macro-economic pressures while some have actually folded. The SMEs sector is a ground of opportunity and this realisation has generated interest from different stakeholders that include local authorities, finance houses, insurance and job seekers.

It is, however, the taxation problem that gives many governments a headache and Zimbabwe is no exception. In an economy where an estimated $3 to $5 billion is believed to be circulating in the informal sector, more attention should be given to taping this resource which should contribute significantly to economic growth. Yesterday's dialogue on pricing and taxation provided some insightful clues on alternative models that Government can embrace to increase revenue from SMEs.

Dr Nyasha Kaseke, a University of Zimbabwe lecturer from the Graduate School of Management, shared five research-based options with the Bulawayo business community. The first proposal is for Government to adopt what is called "Association taxation" model where SMEs could be engaged through their associations, which would be roped in to assist in collecting taxes and fees on behalf of authorities within an agreed mechanism that ensures accountability. The model has worked well in Ghana.

The second approach is the "Segmentation taxation", which creates and identifies special SMEs units in an economy that will be taxed according to their category. The model has been used in Tanzania. Dr Kaseke said Government can also use the "Tax Stamp System", which ensures that for SMEs to get certain documentation, they need to have attached tax payment evidence or stamps. He said the other model could be for Government to cede tax collection powers to local authorities. Cameroon and Ethiopia have championed the model effectively and local councils do their job well. The other alternative would be for Government to use an "Auction System" in which it can cede tax collection role to private bidders as is the case in Uganda and India.

Dr Kaseke noted that challenges in collecting tax from SMEs was largely due to their informal nature, which makes obtaining real information a mammoth task. Government and other stakeholders therefore need to work hard to develop working space and assist in formalising the sector as a starting point.

Surveys conducted so far have shown that most SMEs are sceptical of formalisation and view the country's regulatory environment with suspicion. Dr Kaseke said their studies have shown that most SMEs dreaded multiplicity of fees from organisations such as EMA, Zimra, NSSA, health and labour regulations among other taxes as well as pressure to join illegal associations and political affiliations, among others. The forum also heard that many informal players were reluctant to pay because they felt regulatory bodies abuse their monies or do not know the reason for paying taxes as they do not see the benefits of doing so.

The participants also suggested that Government should come up with a package of incentives to entice formalisation such as provision of operating space, rebates for local processing and using advanced information technology to improve operational efficiency and monitoring.

Some felt there was a need to redefine the term SMEs saying some companies were hiding under this banner to evade paying tax yet producing for exports.
- chronicle
Tags: SMEs,


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