The Government has granted a tax reprieve to small to medium enterprises (SMEs) as part of measures to incentivise formalisation and increase the sector’s contribution to the fiscus.
Informal traders have long complained over the country’s tax regime, which they viewed as “punitive” to their operations. But in his 2017 national budget statement last Thursday, Finance Minister Patrick Chinamasa outlined a range of incentives to cushion SMEs effective January 1, 2017. “Most SMEs are reluctant to register for (value added tax) VAT due to the massive backdated taxes and penalties that they are likely to incur upon registration,” said Minister Chinamasa. “In order to facilitate VAT registration for SMEs that qualify on account of their gross turnover exceeding the threshold of $60 000 per annum, it is proposed to waive the requirement to account for output tax from the deemed date of qualification for registration.” Eligible SMEs, said Minister Chinamasa, will thus account for VAT from the date of registration. The incentive would only apply to SMEs whose turnover does not exceed $240 000 per annum and also voluntarily register for VAT with ZIMRA. VAT is an indirect tax on consumption, charged on the supply of taxable goods and services and is levied on transactions rather than directly on income or profit.
In order for SMEs to transact with private and public sector entities as corporate suppliers within the value chain, they must be registered for VAT. Most SMEs are however reluctant to register for VAT. SMEs that voluntarily register with ZIMRA will only account for provisional tax during the first year of registration, when the fourth quarterly payment date falls due, said Minister Chinamasa. “Alternatively, qualifying SMEs may account for provisional tax on a monthly basis. However, SMEs that are compelled to register for tax after an audit by ZIMRA will not benefit from the above incentives,” he explained.
Treasury also proposed to review downwards presumptive taxes and the payment period from quarterly to monthly basis. The Government introduced presumptive taxes on selected sectors of the economy after noticing the increase of unregistered businesses such as restaurants, bottle stores, hair salons and others to broaden the tax base. The minister also said revenue collected from SMEs through presumptive taxes will be ring fenced towards capitalisation of the SMEs and cooperatives for on-lending to SMEs. This move is expected to deal with the issue of inadequate working capital that has been a thorn in the flesh for SMEs. SMEs constitute more than 60 percent of the country’s population and are a fast-growing sector, which contributes a sizeable chunk to the country’s gross domestic product.
The Minister of Small to Medium Enterprises and Cooperative Development Sithembiso Nyoni said SMEs were very impressed with the budget as it responded to their plight. “We are especially happy with the tax incentives because the SMEs now know that the taxes they pay will be channelled back to the Ministry of SMEs, and that was brilliant,” she said.
SOURCE: The Chronicle