Zimbabwe’s
national
statistical
agency,
ZimStat,
recently
reported
that 76%
of
the
national
economy is
informal.
This
should
be
of
no
surprise
to
anyone,
but
what
to
do
about
it
is
the
big
question
troubling
policymakers.
We
know
the
causes:
failure
to
invest
in
the
core
economy,
lack
of
external
financing,
mountains
of
inherited
regulation
and
poor
economic
governance.
But
is
the
solution
to
try
and
tax
and
ban
the
informal
economy
or
work
with
it,
avoiding
unnecessary
distortions
and
disincentives?
Many
of
those
notionally
in
the
formal
sector
of
course
also
engage
in
the
informal
economy.
Ask
any
teacher,
health
worker
or
government
civil
servant
and
they
all
do
other
work
making
money
when
their
salaries
are
inadequate.
The
boundaries
between
the
formal
and
informal
are
very
obscure
these
days,
meaning
that
taking
the
informal
economy
seriously
–
which
after
all is the
majority
economy
–
must
be
important.
And
of
course,
as many
commentators
point
out,
the
informal
is
not
‘bad’.
After
all,
nearly
all
farming
that
keeps
the
nation
alive
is
‘informal’
in
this
sense.
The
obsession
with
a
particular
type
of
modernist
formality
as
representing
‘development’
is
one
that
emerges
from
colonial
policies,
along
with
the
raft
of
regulations,
licensing
systems
and
so
on
that
follow.
The
desire
to
control
and
manage
towards
a
particular
vision
of
progress
is
strong,
despite
the
long
and
important
tradition
in
development
thinking
that
has
made
the
case
for
the
so-called
‘informal
sector’
in
growing
economies
as
discussed
in
a previous
blog.
Blunt
instruments
Yet
politicians
keep
haranguing
the
informal
sector,
despite
the
fact
that
it
contributes
a
very
substantial
proportion
of
the
GDP
and
many,
many
livelihoods
both
urban
and
rural.
From
all
political
sides,
the
informal
is
condemned
and
deemed
unhygienic,
unsightly,
unsafe,
and
most
especially
not
contributing
the
national
fiscus
through
taxation.
Many
attempts
have
been
made
to tax
informality,
including
the
so-called
‘presumptive
tax’ or
the 2%
tax applied
to
all
money
transfers. To
much
outrage,
presumptive
taxes
have
just
been
hiked
on
all
transport
operators
recently,
once
again
increasing
costs.
These
are
blunt
and
much-resented
instruments.
And
they
don’t
work;
in
fact,
the
opposite
as
they
undermine
informal
activity
and
encourage
people
to
avoid
taxes
as
much
as
possible.
Attempts
to
outlaw
the
informal
sector,
as
has
recently
happened
with
dramatic
interventions
by
the
local
government
minister,
are
bound
to
fail.
In
March
he
announced
that
all street
vending
would
be
banned,
and
most
recently
in
August
he
added
to
this
by
making night-time
clothes
trading
illegal.
These
are
reminiscent
of
colonial
interventions
that
prevented
Africans
trading
in
downtown
areas,
which
were
reserved
for
whites.
Yet
most
citizens
rely
on
these
trading
options
for
cheap,
reliable
supplies
of
important
goods,
especially
when
the
economy
is
so
depressed
and
wages
so
minimal.
Rural
implications
Although
mostly
focused
on
the
metropolitan
urban
areas
these
measures
have
impacts
on
the
rural
hinterlands
too.
The
huge
trade
in
agricultural
products
flowing
from
the
land
reform
areas
go
to
these
markets
in
both
large
and
small
towns.
Traders
from
rural
areas
are
central
to
the
activity
in
the
many
informal
markets,
such as
the
kuTrain
market
in
Masvingo.
Rural
people
invest
in
and
deploy
labour
to
enterprises
in
towns,
investing
their
surplus
income
from
farming
in
new
enterprises,
whether
small
shops,
hair
salons
or
hardware
stores
as our
studies
of
small
towns have
shown.
Upsetting local
(frequently
informal)
economic
development,
now
thriving
thanks
to
land
reform,
through
poorly
thought-out
interventions
can
have
major
knock-on
effects
on
the
growth
and
linkage
potentials
of
land
reform
areas
too,
as
well
as
the
direct
negative
impacts
on
those
informal
traders
and
service
providers. A
recent
positive
development
has
been
the
reduction
of
taxes,
levies
and
fees
in
the
agricultural
sector,
focusing
initially
on
livestock,
dairy
and
stockfeed,
but
trailed
as
part
of
a
revision
and
rationalisation
of
taxes
across
all
sectors
to
improve the
‘ease
of
doing
business’
across
the
economy. This
is
certainly
welcome
and
long
overdue.
Taxation
choices
An
excellent
new
study
has
been
published through
the
International
Centre
for
Tax
and
Development (ICTD)
(briefing here),
which
is
based
at
my
home
base,
the
Institute
of
Development
Studies
at
the
University
of
Sussex
in
the
UK.
The
two
Zimbabwean
authors
highlight
the
dilemmas
of
taxing
informal
economic
systems, a
theme
that
the
Centre
has
been
exploring especially
in
Africa
in
a
number
of
interesting
publications
(see,
for
example, here and here,
amongst
many).
The
bottom
line
is
that
generic,
unfocused
tax
instruments
(like
the
ones
favoured
by
the
Zimbabwean
government)
are
inappropriate
and
simpler,
more
targeted
approaches
are
required
that
don’t
cause
disincentives
to
economic
activity
and
encourage
a
gradual
shift
to
more
formal
forms.
This
is
the
same
advice
offered
by
the World
Bank
in
a
report
covered
on
this
blog
before.
The
ICTD
report
uses
a
survey
of
2490
informants,
covering
a
whole
array
of
informal
suppliers
of
goods
and
services,
in
two
cities
–
Harare
and
Masvingo.
They
show
that
most
of
these
informal
sector
players
have
incomes
below
the
poverty
line.
Most
would
not
be
normally
subject
to
income-based
taxation,
therefore,
and
it
is
only
the
top
20%
of
the
sample
who
might
be
eligible,
although
in
practice
only
6%
pay
mostly
the
‘presumptive
tax’
applied
to
informal
operators.
But
in
fact
all
informal
players
are
heavily
taxed,
whether
through
licensing,
tolls,
fees
and
permits
(see
the
report’s
table
5.4).
And
in
particular,
a
large
proportion
of
outgoings
are
through
bribes
to
local
government,
police
and
other
officials
so
as
to
avoid
other
forms
of
tax.
This
is
a
grossly
inefficient
system
and
although
the
bribes
go
to
support
underpaid
officials,
this
is
a
huge
loss
to
the
tax
system
and
a
poor
form
of
redistribution.
The
survey
shows
too
that
women
suffer
a
particularly
large
burden
of
this
array
of
taxes
and
bribes
because
of
the
sort
of
activities
they
do,
including
trading
involving
moving
so
being
vulnerable
to
being
stopped
and
charged.
And
yet
women
are
largely
in
the
lower
income
brackets
so
suffer
a
high
burden
comparatively.
The
report
also
shows
that
it
depends
on
the
city
what
types
of
taxes/bribes
are
charged,
with
Harare
showing
a
far
higher
level
than
Masvingo.
The
report
authors
argue
that
it
is
essential
to
have
a
decentralised
taxation
system,
appropriate
to
the
locality
and
types
of
businesses,
and
have
this
targeted
so
that
there
are
fewer
gender
and
other
inequities.
The
massive
loss
of
revenue
through
bribes
of
course
can
only
be
reversed
when
such
officials
are
paid
living
wages
but
will
reduce
if
the
opportunities
for
taking
bribes
are
not
available
through
so
many
layers
of
regulation
and
licensing.
Supporting
informality
through
appropriate
policies
What
is
clear
–
as
many
others
have
pointed
out
–
is
that
the
top-down
implementation
of
taxes,
bans
on
informal
activity
and
police
harassment
that
results
is
massively
counter-productive.
Wishing
the
informal
economy
away
with
dreams
of
a
modern,
formal
system
is
simply
pie-in-the-sky.
The
finance
minister, Mthuli
Ncube,
appears
to
have
realised
the
burdens
of
regulation
and
taxation
only
when his
wife
tried
to
set
up
a
restaurant and
had
to
navigate
so
many
licenses
and
associated
charges.
The
mooted
economy-wide
changes
to
encourage
business
will
hopefully
get
rid
of
inappropriate
polices
and
clumsy
interventions
that
have
for
so
long
undermined
the
very
economy
the
finance
ministry
is
trying
to
manage,
which
after
all
is
predominantly
informal.
A
look
at the
ICTD
report by
ministry
officials
might
offer
some
clues
to
a
different
path
ahead.
This
post
was
written
by Ian
Scoones and
first
appeared
on Zimbabweland
Post
published
in:
Agriculture