The African Development Bank (AfDB) has sounded the alarm on Zimbabwe’s informal sector, estimating that the country is losing between $7.5 billion and $8 billion in potential tax revenue every year. The bank is urging the government to formalize the informal economy or implement effective mechanisms to mobilize revenue from this vast, largely untaxed sector.
The informal sector constitutes around 90% of Zimbabwe’s business activity, employing approximately 56% of the national workforce and contributing about 30% to the country’s GDP. Micro, small, and medium enterprises (MSMEs) are the backbone of the informal sector, but they often face fierce competition from large formal firms and remain outside the tax net due to regulatory burdens and inefficiencies in government processes.
Cumbersome licensing, slow permit approvals, and red tape have been identified as key drivers pushing many entrepreneurs into informality. Dr. Sehliselo Mpofu, Director of the Macroeconomic Management Programme at MEFMI, notes that many people view formalization as a threat, associating it with taxation and fees that could erase their small profits. Education is critical to shift perceptions and encourage formalization.
Despite the challenges, Zimbabwe has recorded gains in revenue mobilization. According to the AfDB, the country’s tax revenues increased to 17% of GDP in 2024, equivalent to $6.58 billion, up from 14.6% in 2023. Tax revenues are projected to rise further to 19.7% of GDP in 2025, supported by continued efforts to modernize tax administration and encourage compliance.
The AfDB and MEFMI are calling for decisive action to integrate the informal sector into the mainstream economy. Formalizing the informal sector could significantly bolster the country’s fiscal position and economic resilience. By addressing the barriers to formalization and implementing effective revenue mobilization mechanisms, Zimbabwe can unlock its full economic potential and reduce its dependence on external financing.
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