Nurturing SMEs: An engine for economic growth

Economic Focus Gershem Pasi
THERE has been growing acrimony between Small and Medium Enterprises and revenue collector Zimbabwe Revenue Authority over the years.
The small businesses have accused Zimra of being heavy-handed towards them accusing them of wanton raids especially for those that are into cross-border trading. The raids are done from the border, along the road and sometimes later when they are now selling their merchandise.

The businesses also allege that in fact they must not be subjected to taxing as they are still small and are trying to find their feet. The sector contributes more than 60 percent to Gross Domestic Product according to the Zim Stat.

Zimra on the other hand argue that SMES have been trying to dodge the revenue collector in many ways. Some have been accused of smuggling goods using undesignated entries. Some have been accused of failing to regularize their operations as a way of avoiding the tax man.

Last week during the Zimbabwe International Trade Fair held in Bulawayo, Zimra met some of the SMEs and below we reproduce a presentation by Zimra Commissioner General Mr Gershem Pasi on the revenue collector’s relationship with SMEs.

The theme of this workshop is very apt: “SMEs and Co-operatives innovation: An engine for economic growth”.

SMEs indeed hold the keys to the country’s future.
They are a medium to fuel economic growth, prosperity and poverty reduction.
Critical to the development of SMEs is:

•  Making the trading environment conducive for SMEs.

•  Nurturing small and medium enterprises instead of just harvesting from them.

Key success factors for SMES

•  Establishment of an enabling legal, regulatory and administrative environment.

•  Partnerships between private and public sectors are essential to ensure optimal success in this regard.

•  In addition, availability of finance is also a key success factor for SMEs development.

The Zimbabwean Perspective
SMEs have the potential to be the backbone of the local economy:

•  Can contribute immensely towards the attainment of Zim Asset goals.

•  Can also contribute more to the country’s Gross Domestic Product (GDP).

•  It is, therefore, high time we protected and formalised the SMEs in order to preserve their diversity and to promote entrepreneurship within our communities.

•  Before we can talk of harnessing resources from the informal sector, we need to focus on how to nurture the SMEs by, for instance, providing decent accommodation and operating systems.

What the Government offers
Government offers several incentives to promote growth of SMEs, eg

•  Special Initial Allowance.

•  SMEs can take advantage of Comesa’s Simplified Trade Regime (STR) which offers preferential rates of duty to commercial traders within the Comesa bloc.

•  Bilateral, regional and multi-lateral trade agreements.

•  Zimra will introduce a platform for formalising their operations through Fiscalised Tax Equipment & self service when transacting with the Authority.

The Ministry of Small and Medium Enterprises and Co-operative Development is also formulating and implementing policies and framework for SMEs development.

Role of local Authorities
Local authorities should also continue to play an important role in the growth of SMEs through:

•  Development of infrastructure which includes roads and facilities such as water.

•  Ease of doing business & flexible licensing models eg levying taxes per transaction instead of periodic.

•  Levelling the playing field especially with regards to enforcement of regulations (city by-laws).

•  Avoiding chasing away vendors and other informal traders from the streets, RATHER

•  Create order and areas where people can do honest business.

•  Promote instead of stifling the SMEs.

What is Zimra doing to increase tax compliance by the informal sector?
In the process of finalising programmes to bring order to various players in the informal sector.

•  Programmes should be ready by end of the year.

•  Various arms of Government are working on the matter:

•  Ministry of Local Government, Public Works and National Housing

•  Ministry of Small and Medium Enterprises and Co-operative Development.

•  Ministry of Youth, Indigenisation and Economic Empowerment.

•  Other Government departments.

Zimra nurtures SMES

•  Zimra does not merely wait to tax businesses, but nurtures them.

•  Zimra set up an office for SMEs to specifically deal with queries and inquiries pertaining to this important sector.

•  Formalised business structures and provision of operating platforms.

•  Soon to introduce self-service using the automated payment and return management systems.

•  Automated Revenue Machines in conjunction with our technical partners.

•  Harnessing of other technological resources.

•  Awareness Campaigns to improve compliance.

•  Creating awareness through various channels of communication.

Information dissemination through:

•  Participation in exhibitions such as ZITF.

•  Engagement of SMEs through seminars and workshops.

•  Website, Facebook, Twitter and other social media.

•  Newspaper articles — “Did You Know” column.

•  Reminder notices.

•  Reminders sent out via e-mail.

•  Publications — for instance ‘Revenews’ magazine, fliers, etc.

Harnessing the Informal Sector

•  Segmenting the SMEs into Medium and Small Enterprises to encourage growth.

•  Having Offices within a radius of 100KM to minimise costs and improve accessibility.

•  Compliant local authorities also collect on Zimra’s behalf.

•  Simplification of legislation.

•  Presumptive Taxes which were introduced in 2005 to cater for the informal sector.

Recommendations on how to nurture SMES

•  More diversified funding options have to be introduced at a national level.

•  SME stock exchange could be a panacea.

•  Enhanced public-private dialogue and partnerships with stakeholders to enhance ease of implementation, political credibility and sustainability of SME development strategies.

• Advance reforms and policies aimed at self-help than direct financial assistance.

Recommendations

•  Implement sound macro-economic policies and develop conducive micro-economic business environment.

•  Strengthening an enabling legal, regulatory and administrative environment at local, regional and national levels, where property rights are clearly recognised and contracts easily enforced.

•  Reduce transaction costs through fair, simple and less costly taxation, customs, licensing, registration, financial, judicial and other governance systems and procedures.

•  Facilitate availability of access to medium to long term loan and equity finance to improve trade and investment opportunities for SMEs.

Conclusion

•  There is room for improvement in terms of financing SMEs.

•  It is a wrong prescription to cause ructions that threaten SME existence because of failure to adhere to set tax laws, for they are multinational enterprises of the future.

•  Focus should be on the bigger economic picture without blinkering our view on the current SME challenges.

•  Tax policies should also help SMEs fulfill their potential role in nurturing a health economy.