HARARE — Zimbabwe is preparing to tighten the integration of its informal economy into the national tax system by linking the renewal of local authority vendor licences to compliance with presumptive tax requirements administered by the Zimbabwe Revenue Authority (ZIMRA).
Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube has proposed that councils and ZIMRA share registration and payment information through integrated digital platforms, effectively making tax compliance part of the process through which vendors and other small traders retain their operating licences.
The proposal comes as Treasury seeks to broaden the country’s tax base beyond formal companies, employees and established businesses, which currently account for a significant share of government revenue.
Zimbabwe collected ZiG137.8 billion, equivalent to approximately US$5.15 billion, during the first half of 2026, exceeding its ZiG124.4 billion target by ZiG13.4 billion, or 10.8%.
Value-added tax remained the largest source of revenue, contributing 28% of collections, followed by personal income tax at 17%, corporate income tax at 14%, excise duty at 8% and the Intermediated Money Transfer Tax at 6%.
Informal economy becomes the next tax frontier
The proposed reform reflects Treasury’s growing focus on economic activity that is visible to local authorities but remains outside the formal national tax system.
Councils already hold information on traders operating from markets, stalls, shops and designated vending areas, including their names, locations, business categories, licence histories and renewal dates. ZIMRA, meanwhile, administers presumptive taxes through a separate system.
Integrating the two databases would allow Government to use existing municipal records to identify businesses, allocate appropriate tax categories, record payments and verify tax compliance during licence renewals.
Rather than relying entirely on costly inspections to identify informal businesses, the system would turn the annual licensing process into a recurring tax-registration and compliance mechanism.
Formal businesses face competitive pressure
The move could also address concerns from Zimbabwe’s formal private sector, where registered businesses face a wider range of tax and regulatory obligations, including corporate income tax, VAT, PAYE, withholding taxes and various statutory charges.
Informal and micro businesses can sometimes compete in the same markets while carrying a substantially lighter formal compliance burden. This can create differences in operating costs, pricing and margins across sectors such as retail, transport, food services and personal services.
Broadening the taxpayer base would allow Treasury to raise additional revenue from a larger segment of economic activity rather than placing increasing pressure on businesses and consumers already inside the tax system.
Fiscal space remains constrained
The proposed reform also comes against a backdrop of significant fiscal constraints.
Government spent ZiG123.6 billion during the first six months of 2026, leaving revenue ZiG14.2 billion above expenditure. Treasury directed the resulting surplus towards public debt and arrears owed to service providers.
The significance of expanding the taxpayer base therefore extends beyond simply increasing revenue. Sustained domestic collections could strengthen Government’s capacity to service debt, clear arrears and finance public services from current income.
VAT’s dominance, however, highlights another challenge for policymakers. While strong VAT collections provide a reliable source of government revenue, the tax is ultimately embedded in the prices paid by consumers. Excessive reliance on consumption taxes can place pressure on household purchasing power and potentially weaken demand if tax costs continue to rise.
Formalisation could improve access to finance
The proposed tax integration could also have implications beyond revenue collection.
A trader who becomes formally registered and develops a consistent record of licence renewals, tax payments and digital transactions would begin creating an identifiable business history.
That information could potentially help banks, insurers, suppliers and microfinance institutions assess the creditworthiness of small enterprises that currently struggle to demonstrate verifiable turnover or an established operating record.
Formalisation could therefore improve access to working capital, merchant payment facilities, asset finance, supplier credit and insurance, creating a potential bridge between informal trading and the formal SME sector.
Councils could benefit from integrated system
Local authorities would also stand to benefit from a unified digital system.
Integrated licensing and tax records could improve trader identification, reduce duplicate or fraudulent licences, strengthen revenue collection and provide councils with a clearer picture of commercial activity within markets and urban centres.
Better data could subsequently support planning for sanitation, security, infrastructure and market facilities.
However, the success of the policy will depend heavily on how the presumptive tax system is designed.
Simplicity critical to compliance
A uniform tax charge could prove problematic because Zimbabwe’s informal economy contains businesses with vastly different levels of turnover and profitability.
A small street trader operating with limited daily sales should not necessarily face the same tax burden as a trader operating multiple outlets or generating substantially higher revenues.
A graduated system based on factors such as business activity, location, licence category and turnover would provide a more credible pathway from survivalist trading towards established SME status and eventually into the ordinary tax regime.
Excessive fixed charges could have the opposite effect, encouraging traders to abandon licence renewal and move further outside the formal system.
Vendors already face rentals, market fees, licence charges and other local authority levies. Adding national tax obligations without simplifying the payment process could create an excessive compliance burden.
A single digital platform showing all applicable charges, payment history and compliance status could therefore be critical to the reform’s success.
Digital infrastructure and trust will determine outcome
Technology will be central to implementation.
Incorrect records, delayed payment confirmations or mismatched taxpayer information could prevent compliant businesses from renewing licences. The system would therefore require clear procedures for correcting errors, resolving disputes and handling temporary compliance issues.
Data protection will also become increasingly important as councils and ZIMRA begin sharing commercially sensitive information, including identification details, business activity and payment records.
For the reform to gain acceptance, traders must be able to see what information Government holds on them and have mechanisms to challenge inaccurate liabilities.
From tax collection to SME development
The broader economic test will be whether the reform produces more than additional tax revenue.
Treasury could measure its success by tracking the number of new active taxpayers, licence-renewal rates, revenue collected per registered trader, administrative costs and the number of businesses graduating into higher turnover categories and eventually ordinary tax registration.
The extent to which newly formalised businesses gain access to credit, insurance and digital financial services could provide an even more meaningful measure of whether formalisation is creating economic value.
The Government could initially pilot the system in local authorities with established digital licensing infrastructure before expanding it nationally. Such pilots would allow authorities to test taxpayer identification, tax classification, payment confirmation and licence renewal processes before a wider rollout.
Professor Ncube’s proposal effectively transforms the municipal vendor licence from a local permission to trade into a potential national tax-administration gateway.
For Treasury, the immediate opportunity is to capture a larger share of economic activity already taking place. For businesses, the longer-term opportunity is to convert formalisation from a compliance cost into an economic asset that creates a verifiable business history and potentially improves access to finance.
The policy’s success, however, will ultimately depend on whether operating legally becomes simpler, cheaper and more commercially beneficial than remaining outside the system.
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