Parly cranks up pressure on Treasury

LIVINGSTONE MARUFU

Parliament has dramatically escalated pressure on Treasury to act decisively in the face of a deepening formal business crisis, demanding the removal of punitive taxes, including the controversial 2% Intermediated Money Transfer Tax (IMTT)  by August 31, 2025, to ease the regulatory chokehold strangling local businesses.

In a scathing report seen by Business Times, the parliamentary Portfolio Committee on Industry and Commerce, chaired by Clemence Chiduwa, warned that the formal business sector is rapidly sinking under a suffocating regulatory environment. Overregulation, a barrage of statutory instruments, and an unsustainable tax burden have triggered a wave of closures, fuelled the informal economy, and pushed Zimbabwe further into a fragile, cash-driven system.

The Committee revealed that the crisis has already claimed at least 20 retail and wholesale outlets since the start of the year, a trend it described as the emergence of a “serious corporate graveyard” threatening jobs, tax revenues, and economic stability.

The IMTT, originally introduced as a revenue-generating tool, has instead driven economic activity underground. The Committee said the tax has offered no tangible benefit to the economy, but has added an unnecessary cost burden to formal businesses and accelerated the public’s retreat into cash transactions, undermining financial inclusion and eroding monetary policy effectiveness.

Chiduwa’s Committee made it clear that formal businesses are fighting a losing battle. While registered businesses are forced to comply with complex tax laws and hefty regulatory charges, the informal sector operates with minimal oversight, enjoying a clear price advantage that continues to shrink the formal tax base.

According to the Committee’s findings, taxes and regulatory charges now consume over 5% of total expenditure for most businesses. Retail and wholesale associations have voiced growing frustration over these costs, warning that the operating environment is becoming unviable for many.

The IMTT, currently the highest of its kind in the region, has deterred the use of electronic transactions, encouraging a shift back to cash-based trade. Worse still, it is not deductible for income tax purposes, compounding the financial strain on compliant businesses and distorting the tax system.

The banking sector has been caught in the crossfire. The Bankers Association of Zimbabwe (BAZ) has raised alarm over a sharp decline in transaction volumes, as businesses and individuals increasingly shun formal banking channels to avoid the IMTT. In response, BAZ has submitted a package of proposals to Treasury, ahead of the Mid-Term Budget Review, aimed at restoring confidence in formal financial systems and preventing further economic fragmentation.

Among the key recommendations are calls for Treasury to reduce the IMTT rate to encourage formal transactions, charge IMTT on outbound payments in local currency to ease foreign currency shortages, and recognise the IMTT as a deductible expense for tax-compliant entities to alleviate their financial burden and promote formalisation.

The formal sector’s challenges, however, extend well beyond the IMTT.

Chiduwa described Zimbabwe’s regulatory environment as an “oppressive maze” that actively discourages business formalisation. He revealed that operating a single supermarket in Zimbabwe requires securing over 30 different licenses and permits, each carrying significant costs and administrative red tape. This, he said, has created a powerful incentive for many small and medium-sized enterprises (SMEs) to remain informal, avoiding compliance costs and outcompeting their formal counterparts through lower pricing.

The Committee expressed deep concern over the sheer volume of statutory instruments flooding the regulatory space. So far in 2024, the government has been enacting one statutory instrument every 1.43 days, exacerbating legal uncertainty, confusing businesses, and stifling investment.

In response, the Committee has given the Ministry of Industry and Commerce until September 2025 to overhaul the business registration and licensing framework. The Ministry has been directed to streamline processes, eliminate overlapping and redundant requirements, and implement a tiered compliance model that eases the transition of small businesses into the formal sector.

Digitisation is also a key recommendation. The Committee has called on the Ministry to expand e-government services by December 2025, enabling businesses to complete registration and compliance processes online, thereby reducing costs, delays, and bureaucratic inefficiencies.

To prevent further confusion and regulatory contradictions, the Committee urged the Ministry of Industry and Commerce to consolidate statutory instruments and reduce legal fragmentation. It also warned that Treasury must ensure that when businesses are required to price goods using the market exchange rate, clear statutory instruments are issued to prevent chaos. In particular, the Committee called for the repeal of problematic provisions introduced by Statutory Instrument 81A of 2024, which has sown widespread confusion in the market.

Chiduwa further emphasised the need for Parliament to exercise greater oversight over draft statutory instruments to ensure they align with existing legislation and avoid contradictory regulations that penalise businesses.

Electricity costs have emerged as yet another major threat to competitiveness. The Committee highlighted that chronic power shortages have forced many businesses to rely on expensive generators and solar energy, pushing operational costs even higher.

The situation is being compounded by rampant smuggling and counterfeit products, which continue to flood Zimbabwean markets, undermining formal businesses that comply with tax and regulatory requirements. The Confederation of Zimbabwe Industries (CZI) warned that smuggled goods, which evade duties and other compliance costs, are sold at artificially low prices, driving legitimate operators out of business and costing the economy millions in lost revenue.

Despite its current challenges, Zimbabwe’s wholesale and retail sector remains a critical pillar of the economy. In the first quarter of 2024, the sector contributed approximately 18% to GDP, cementing its position as one of the top contributors to national economic output over the past five years.

Yet, exchange rate volatility, supply chain disruptions, regulatory uncertainty, and mounting closures by key players have left the sector reeling, with fears of further job losses and revenue decline growing by the day.

With the clock ticking towards Parliament’s August 2025 deadline, the spotlight is now firmly on Treasury and the Ministry of Industry and Commerce. The question that remains is whether policymakers will finally deliver the bold reforms needed to rescue Zimbabwe’s embattled formal businesses or whether the sector will continue its steady descent into collapse and informality.