The impact of Zimbabwe’s low VAT threshold on small businesses

MAXWELL NGORIMA

The current Value Added Tax (VAT) registration threshold of US$25 000 per annum in Zimbabwe presents significant challenges for small businesses and low-income earners, potentially leading to non-compliance and hindering economic growth.

This threshold, when compared to international standards, is notably low and places an undue administrative burden on a large segment of the business population.

The Problem with a Low VAT Threshold A VAT registration threshold of US$ 25 000 means that many micro, small, and medium-sized enterprises (MSMEs) are compelled to register for VAT, even if their operations are relatively small. This requirement triggers a cascade of obligations:

• Fiscalisation: Businesses must acquire and maintain fiscal devices, which are specialized electronic cash registers that transmit sales data directly to the Zimbabwe Revenue Authority (ZIMRA)

. The initial cost of these devices, coupled with ongoing maintenance and connectivity fees, can be prohibitive for small businesses operating on thin margins.

• ZIMRA Returns: Registered businesses are required to regularly file VAT returns, typically monthly or bi-monthly

. This process demands a detailed understanding of VAT principles, input tax deductions, output tax calculations, and compliance with specific legislative requirements.

• Administrative Burden: For many small business owners, who often manage all aspects of their operations, the time and effort required to understand and comply with VAT regulations can be overwhelming. This diverts valuable resources away from core business activities, impacting productivity and growth.
• Need for Consultants: The complexity of VAT legislation often necessitates hiring tax consultants or accountants to assist with compliance. This adds another layer of cost, further eroding the profitability of small businesses .
• Non-Compliance Risk: The high administrative burden and associated costs can inadvertently push businesses towards non-compliance. Faced with the choice between investing in compliance and sustaining their operations, some may opt to operate informally, leading to a loss of potential tax revenue for the government and an uneven playing field for compliant businesses .

A Humanized Perspective Imagine a single mother running a small tailoring business from her home, earning just above the US$25 000 threshold. Suddenly, she’s expected to understand complex tax laws, purchase an expensive fiscal device, and file regular returns, all while trying to make ends meet and care for her family. This isn’t just about numbers; it’s about people’s livelihoods and their ability to contribute to the economy without being crushed by bureaucracy.

The current system, while aiming for revenue collection, risks stifling the very entrepreneurial spirit it should be fostering. Policy Recommendations and International Best Practices Policy makers should consider revising the VAT registration threshold to align with international best practices and create a more equitable and efficient tax system. Here are some suggestions, drawing from verifiable jurisdictions: Increase the VAT registration threshold significantly:

• United Kingdom: The VAT registration threshold in the UK is £90,000 (approximately US$ 110,000 as of October 2025). This allows a substantial number of small businesses to operate without the immediate burden of VAT compliance, fostering growth before they reach a scale where VAT administration is more manageable.
• Australia: Australia’s Goods and Services Tax (GST) registration threshold is AUD 75,000 (approximately US$50,000) ] . This provides a reasonable buffer for small businesses.
• Tanzania: The VAT registration threshold in Tanzania is TZS 100 million (approximately US$40,000) ] . This provides a higher threshold compared to Zimbabwe, reducing the compliance burden on smaller enterprises.
• Botswana: Botswana’s VAT registration threshold is BWP 1 million (approximately US$75,000). This significantly higher threshold allows a greater number of small businesses to operate without the immediate requirement for VAT registration.

Recommendation for Zimbabwe:

A significant increase to at least US$50,000 or even US$ 75,000 would dramatically reduce the compliance burden on micro and small enterprises, allowing them to focus on growth. This would also align Zimbabwe more closely with regional and international norms, particularly with countries like Botswana and Tanzania.

Implement a Simplified Tax Regime for Small Businesses Below the New Threshold:

• Presumptive Tax Schemes: For businesses operating below the revised VAT threshold, ZIMRA could introduce a simplified presumptive tax scheme. This involves taxing businesses based on estimated turnover or a fixed percentage of their gross receipts, rather than requiring detailed record-keeping and complex VAT calculations.

Example (Kenya): Kenya has a Turnover Tax (TOT) for small businesses with gross turnover between KES 1 million and KES 50 million (approximately US$7,000 to US$350,000), taxed at a rate of 3% on gross turnover. This simplifies compliance significantly.

• Example (Rwanda): Rwanda has a lump-sum tax for small businesses with turnover below a certain threshold, which is simpler to administer than full VAT compliance.

Recommendation for Zimbabwe

Introduce a simplified turnover tax or a fixed annual levy for businesses below the new VAT threshold. This would ensure they contribute to the tax base without the onerous administrative burden of VAT.

Phased Introduction of Fiscalisation and Digitalization:

• Instead of a blanket requirement, fiscalisation could be introduced in phases, starting with larger businesses and gradually extending to smaller ones as they grow and their capacity to comply increases.

• Provide Subsidies or Incentives for Fiscal Devices: The government could offer subsidies or tax credits for the purchase of fiscal devices, particularly for businesses just crossing the threshold, to ease the initial financial burden.
• Develop User-Friendly Digital Platforms: ZIMRA should invest in developing intuitive and easy-to-use online platforms for tax filing, with clear instructions and readily available support. This would reduce the reliance on expensive consultants. Enhanced Taxpayer Education and Support:
• ZIMRA should proactively engage in extensive taxpayer education campaigns, offering free workshops, online tutorials, and accessible helplines to demystify tax regulations.
• Dedicated Small Business Support Units: Establish dedicated units within ZIMRA to provide tailored support and guidance to small businesses, helping them navigate compliance requirements. By adopting these measures, Zimbabwe can create a more inclusive and growth-oriented tax environment.

A higher VAT threshold, coupled with simplified tax regimes for smaller entities, would reduce the administrative burden, encourage formalization, and ultimately lead to greater compliance and a more robust tax base in the long run.

This approach acknowledges the realities faced by small businesses and empowers them to thrive, contributing more effectively to national development.

Maxwell Ngorima is a tax partner at BDO Zimbabwe chartered accountants. He can be contacted on 263772247643