Government Moves to Formalize Economy with New Compliance Measures

The government has introduced a series of new policies aimed at ensuring regulatory compliance in the retail and wholesale sectors, as part of broader efforts to formalize the country’s increasingly informal economy.

These measures, driven by concerns over tax evasion and market imbalances, were announced after a high-level economic meeting led by President Mnangagwa at State House in Harare.

Finance, Economic Development, and Investment Promotion Minister, Professor Mthuli Ncube, stated that these initiatives build on existing fiscal strategies to enhance formalization and combat illegal trade.

With registered retailers and wholesalers facing stiff competition from unregulated businesses, the government is intensifying efforts to restore balance. One key intervention is the mandatory use of point-of-sale (POS) machines for all informal traders.

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This requirement aims to ensure transactions are properly recorded, facilitating tax collection and closing loopholes that have allowed businesses to operate outside the formal economy.

“Our goal is to create a level playing field and expand the tax base,” Prof. Ncube explained. “We are adopting global best practices to enhance tax compliance, ensuring that all eligible businesses fulfill their obligations.”

To further minimize tax evasion, the government will enforce regulations that restrict manufacturers from supplying products directly to informal markets and end-users. This approach aims to strengthen oversight by directing goods through recognized retail and wholesale channels.

Additionally, a ‘Domestic Interagency Enforcement Team’ will be formed to monitor and ensure compliance across informal enterprises.

“We are streamlining regulations, cutting costs, and removing redundant government processes,” Prof. Ncube said. “This will not only make business operations more affordable but also encourage companies to formalize.”

The Reserve Bank of Zimbabwe (RBZ) is also set to introduce additional monetary policy measures to further support formalization, with details to be outlined in the upcoming Monetary Policy Statement.

Concerns over the rise in smuggled goods—particularly within reserved sectors—have prompted the government to tighten enforcement of the Indigenisation and Economic Empowerment Act. This initiative aims to ensure that protected industries remain beneficial to local businesses.

Authorities are also increasing efforts to source more goods and services from domestic producers, a strategy intended to bolster local industries and reduce import dependency. The Industrialisation Fund will be expanded to offer further incentives to manufacturers.

“The government remains committed to supporting local enterprises,” Prof. Ncube said. “By enforcing regulations and introducing targeted financial incentives, we seek to drive industrial growth and create sustainable employment.”

These policies align with previous government measures to address informalization and improve tax compliance.

In the 2024 Mid-Term Budget and the 2025 National Budget, authorities introduced a 5% withholding tax on unregistered Micro and Small Enterprises (MSMEs) purchasing goods from wholesalers and manufacturers. This ensures that informal traders contribute to public revenue and do not gain an unfair competitive advantage over tax-compliant businesses.

To further expand tax registration, the VAT threshold was reduced from US$40,000 to US$25,000, compelling more businesses to enter the formal tax system.

To tackle the surge in illicit trade, the government has classified certain goods—such as alcoholic and non-alcoholic beverages, dairy products, detergents, washing powder, and sugar—as ‘deemed smuggled’ unless sellers can provide proof of duty payment. This measure is designed to combat the influx of untaxed imports saturating local markets.

Recognizing the importance of financial support in the formal sector, the RBZ has also introduced the Targeted Finance Facility (TFF) to provide working capital for businesses in the retail and production industries.

With these reforms already underway, the government is reinforcing enforcement mechanisms and implementing additional measures to accelerate economic formalization.

“These initiatives are about more than tax collection,” Prof. Ncube emphasized. “They are designed to strengthen Zimbabwe’s economic framework, making it more resilient and competitive in the long term.”

Given the significant role of the informal sector in Zimbabwe’s economy, the government remains committed to ensuring that businesses operate within the formal framework. By tackling tax evasion, curbing smuggling, and incentivizing local production, authorities believe these policies will foster economic stability and long-term growth.