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Bianca Mlilo, Business Reporter
THE process of formalisation is “too expensive” for small to medium scale enterprises (SMEs) and that is a major impediment to their growth, a survey has revealed.

The Ministry of Small and Medium Enterprises and Cooperative Development embarked on a nationwide formalisation awareness campaign in March this year, holding workshops in major cities such as Harare, Bulawayo, Mutare and Masvingo.

However, the survey conducted by Probe Market Research, which comprised 2,063 face to face interviews and 15 key informant interviews, indicates that a lot of work still needs to be done to support the growth of budding businesses.

Giving findings of the survey at a workshop on the validation of the formalisation research report, a Probe Market Research representative said more than half of the participants in the interviews revealed that the process was too expensive hence they preferred operating informally.

“In the barriers to formalisation, 58 percent of formalised participants said the process was too expensive for them, while 62 percent of the unlicensed cited the costs as the major force behind their non-formalisation,” said Probe.

“Meanwhile, 29 percent and 25 percent of the sample group said the time taken to formalise and bureaucracy issues respectively were the reasons why they wouldn’t formalise.”

Tax issues were also cited as a hindrance to the smooth formalisation process. Probe Market Research also said 29 percent of the interviewees said paying taxes was a disadvantage that they could do without.

The organisation said only four percent of SMEs pay taxes to the Zimbabwe Revenue Authority (Zimra).

The tax collecting authority was rapped for being unsympathetic to businesses by taxing them based on invoices instead of receipts.

A Zimra official who attended the meeting but cannot be named for professional reasons took                          time to explain the way Zimra carries out its taxing duties.

“There are two types of taxes for SMEs, that is, presumptive tax and income tax. Presumptive tax is for informal traders and income tax is for   everyone who does business in Zimbabwe,” said the official.

“Tax is calculated on an accrual basis, which means tax is due and payable in respect of supply to a customer and not when the customer pays.”
Probe Market Research said most participants felt that registering with Zimra was a risky venture.

Other inhibitions to formalisation cited by SMEs were lack of confidence in the economy and inhibitive local authority by-laws.

With the demise of industries in the past few years and the resultant job losses, thousands of Zimbabweans have taken refuge in the informal sector.

Estimates indicate more than four million people are employed in the informal sector with about $7 billion said to be circulating outside the banking system.

Experts have urged the government and regulatory authorities to fast track the ease of doing business reforms and tailor make its policies to support small businesses as well.