The Zimbabwean government's recent policy mandate requiring all businesses, including the informal sector, to adopt electronic payments represents a significant shift in regulatory measures aimed at increasing tax compliance and formalizing the country's economy.
While the intention behind this mandate—as articulated by Information minister Jenfan Muswere and Finance minister Mthuli Ncube—seeks to modernise payment systems, enhance economic stability, and improve tax collection, the policy raises critical concerns regarding its implementation, inclusivity, and potential economic impact.
Background: Context of the new policy
Zimbabwe's economy has long struggled with hyperinflation, currency volatility, and a large informal sector that accounts for a substantial portion of employment and economic activity.
The government's recent push for electronic payments aims to tackle persistent challenges in tax collection, which have historically stemmed from the informal sector's limited engagement with the formal economy.
By mandating electronic transactions, the government envisions greater oversight and control over the informal market, which is crucial for ensuring compliance with tax laws and regulations.
Critique of the policy
- Implications for the informal sector
One of the most pressing concerns with the new policy is its impact on the informal sector, which plays a vital role in Zimbabwe's economy.
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Vendors and small-scale businesses often operate on tight margins, using cash transactions for their convenience and reliability in an economy fraught with the risks of hyperinflation and currency devaluation.
Mandating electronic payments may inadvertently exclude a part of the informal sector that lacks access to banking services, reliable electricity, or even the necessary technology such as smartphones and POS machines.
Imposing such requirements could lead to economic disenfranchisement, pushing small vendors out of business rather than integrating them into the formal economy.
- Access to banking and technology
The need for businesses to register with local authorities and open bank accounts raises critical questions about access to financial services.
In a country where many citizens are unbanked, particularly in rural areas, the policy creates additional barriers to entry for those who already face systemic challenges in accessing financial institutions.
For successful implementation, the government must ensure that adequate infrastructure, education, and technological support are provided to those who may struggle to adapt to electronic payments, particularly marginalized populations engaged in informal trading.
- Cost and burden of compliance
For many MSMEs, particularly those in the informal economy, the cost of compliance may outweigh the benefits of being formalised.
The requirement to purchase POS machines and maintain a bank account introduces additional financial burdens that could destabilize existing businesses.
Many of these enterprises are already vulnerable to economic shocks and operate on unpredictable incomes; adding further financial strain could push them into insolvency or encourage continued reliance on cash transactions outside the purview of the formal economy.
- Government trust and public perception
The order to enforce electronic payments comes at a time when many Zimbabweans harbor mistrust towards government institutions, particularly the Finance ministry.
The historical context of economic mismanagement, rampant corruption, and lack of fiscal transparency diminishes public confidence in government initiatives.
By pivoting to compulsory electronic payment systems, the government risks facing resistance and backlash from the public, particularly if citizens believe that the reforms are designed primarily to generate revenue for the government rather than improve their economic wellbeing.
- Administrative capacity and enforcement challenges
The establishment of a "Domestic Inter-agency Team" to ensure compliance raises questions about the government's administrative capacity to carry out such enforcement effectively. Zimbabwe has historically struggled with bureaucratic inefficiencies, and the imposition of new regulations demands a competent framework for monitoring and enforcement. Without proper training, resources, and tools to conduct oversight, the government may find it exceedingly challenging to regulate the informal sector.
There is a real risk that the new regulations could exacerbate existing bureaucratic bottlenecks, leading to further frustration among business owners and potentially fueling corruption as vendors seek to navigate compliance challenges.
- Market disruption and economic impact
From a macroeconomic perspective, mandating electronic payments will likely cause disruptions in the market, particularly in urban informal trading spaces that are heavily reliant on cash transactions.
Should these vendors be unable to comply with the new rules, it can lead to increased unemployment, and the further fragmentation of informal economies.
The ramifications of restricting cash transactions may ripple through the broader economy, leading to decreased purchasing power, slower economic activity, and increased poverty levels among vulnerable populations especially in the already marginalised communities.
Potential benefits: Tax compliance and transparency
Despite the legitimate concerns surrounding implementation, the potential advantages of such a policy should not be dismissed wholly.
The compulsory adoption of electronic payments could pave the way for improved tax compliance, assigning an audit trail to transactions that were previously unrecorded.
Enhanced transparency might also contribute to a fairer marketplace, forcing businesses into competition based on merit rather than tax evasion.
If effectively managed, this could cultivate an environment of trust that benefits larger, more established businesses while also integrating smaller operations into the formal economy.
Consideration of a gradual transition
In light of the profound implications of this policy, a more incremental approach may prove beneficial.
Gradually inducing sectors of the informal economy to convert to electronic payment systems through incentives rather than compulsion could alleviate burdens and allow time for adjustments.
Initiatives like subsidising POS machines or providing education about electronic payments may promote a more organic transition while allowing local businesses to flourish alongside regulatory compliance.
Conclusion
The government's policy mandating electronic payments for all businesses in Zimbabwe, including small informal vendors, reflects an ambitious attempt to formalise the economy, enhance tax compliance, and stabilise an unstable financial landscape.
However, the immediate implications of this policy raise significant concerns for access, affordability, public trust, compliance challenges, and potential economic impacts.
To ensure the policy's success, the Zimbabwean government needs to prioritize stakeholder engagement, adequate resource allocation, and a phased implementation strategy that includes direct support for the affected businesses.
By addressing these concerns sustainably and inclusively, the government can proceed toward a more formal economy without marginalising those who play an essential role in the existing economic framework.
Ultimately, the goal should be to create an environment where all players—formal and informal—can thrive together, contributing to a resilient and growing economy.
- Samuel Wadzai is an informal economy expert and currently the executive director for the Vendors Initiative for Social and Economic Transformation (VISET) Feedback: Email address: swadzai@visetonline.org
These weekly articles, are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Private) Limited, past president of the Zimbabwe Economics Society and past president of the Chartered Governance & Accountancy Institute in Zimbabwe. Email- kadenge.zes@gmail.com and Mobile No. +263 772 382 852
