Informal Sector Tax Administration In Zimbabwe

SUMMARY Governments have to raise revenue to finance public goods. This study analyses the challenges that Zimbabwe, like most developing countries, faces in attempting to collect taxes from its informal sector. Because the so‐called informal sector forms a large and sometimes growing component of the economy, collecting sufficient revenues to fund expenditure requires tax authorities to seek ways to collect revenues from those earning their incomes in the informal sector. There has been an attempt to collect taxes from the informal sector in Zimbabwe over the past 8 years. Although the actual amount collected from this sector has increased, an evaluation of the way taxes are administered needs to go beyond the amount of revenue collected. It needs to also look at issues such as the proportion of the informal sector paying these taxes, the amount collected as a proportion of total revenues, the costs incurred in collecting these taxes and the tax administration's ability to encourage quasi‐voluntary compliance. This study indicates that the levels of evasion (confirmed by the informal sector associations themselves), selective application of tax regulations and corruption are alarmingly high. These factors, together with the very high tax rates and sheer ignorance, operate as a serious disincentive in informal sector tax compliance resulting in very low revenues from this sector. Copyright © 2014 John Wiley & Sons, Ltd.