Tax Collection Constraints, and Tax Burden on the Urban Informal Sector Enterprises: Evidence from Bulawayo, Zimbabwe

Abstract

The paper examines the difficulty related to tax collection from the poor informal sector in Bulawayo, Zimbabwe between 2000 and 2014. In the period under review, many formal enterprises closed leading to employee lay-offs and increased unemployment. The unemployed resorted to the informal sector which has grown to be a large proportion of the working population. In order to increase tax base the revenue authority introduced a Presumptive Tax Policy. However, it has been difficult to enforce the policy due to non-compliance by poor informal traders. We carry out a survey of the Bulawayo Metropolitan Province in an effort to unravel the practical challenges of enforcement of the Presumptive Tax to a sector that can hardly cope with the basic needs. The results show that size and number of the informal sector, resource constraints, political interference, corruption tendencies, notions of fairness and tax educational gap influence tax collection in Bulawayo-Zimbabwe. Furthermore, findings from the survey indicate that the low incomes generated by the informal sector persuade them to avoid tax. To date scant research has been done on tax collection and evasion by informal sector in Bulawayo, Zimbabwe. In that regard the study contributes to current literature on the informal sector; also the study adds value to policy making. The research findings of the study are important to government policymakers, urban planners and informal traders’ development.

DOI: 10.5901/mjss.2016.v7n6p79