Wholesalers, industry to enforce tax rules

TUCKED into a few paragraphs in the national budget speech for this year were a pair of proposals to use manufacturers and wholesalers to enforce the requirement for tuckshops and a wide swathe of other small businesses to register with Zimra and pay whatever taxes were assessed.

Minister of Finance, Economic Development and Investment Promotion wanted wholesalers to see a tax clearance certificate before they supplied any retailer, and wanted manufacturers barred from direct supply to retailers unless that retailer was registered for VAT, although he simultaneously lowered the minimum turnover needing registration to US$20 000, bringing in a lot of smaller businesses.

These particular proposals seemed to cause no stir and no comment. The business sector reserved comments for other proposals, such as the ending of the zero rate of VAT on a handful of products and the sugar tax on sugar in soft drinks. The trading proposals went through without public or Parliamentary debate, since no one raised the matter.

But they are now, in modified form, being enforced with Zimra issuing the detailed instructions. Basically manufacturers cannot sell to any retailer, and cannot sell to any wholesaler who is not registered for VAT and can show they are tax compliant.

But once that registration is done and compliance is proved then there are no limits on what the manufacturer can sell.

Wholesalers must have a wholesale licence, which implies that large retailers can simply add that licence to their pile, so large chain stores can continue to buy direct. Wholesalers can sell any quantity of goods to any retailer who is registered for VAT and has a tax clearance certificate.

There has been some modification to the original proposal, making life slightly easier for very small retailers. If they have been a regular customer of a wholesaler they can buy of to US$1 000 of goods in any 30-day period, but may need to produce their last receipt. That is not much turnover so the businesses would be small. Without the proof of the previous purchase from the same wholesaler, the maximum is just US$20.

The waters have been slightly muddied this week by talk that the measure is designed to preserve the chain of manufacturer, wholesaler and retailer, with the threatened wholesalers being given some protection, a protection they say they do not really need if their business is to be limited by what they can sell to the smaller retailers.

This appears to be nothing more than a sort of possible by-product of the measures. The main two concerns appear to be first the need to get as many as possible in the informal sector and the lower reaches of the more formal retailers to register with Zimra and then pay their taxes, the incentive being that it makes doing business much easier and even in some cases possible.

The second reason is to plug what many see as a totally undesirable connivance between some manufacturers and a swathe of tuckshops to circumvent the multi-currency policies of the Government and the Reserve Bank, and even to create artificial shortages of some products so that all who want them have to go to the tuckshops.

This connivance is built around the fact that almost all tuckshops accept US dollars only, and not just US dollars, but US dollars in American bank notes, with digital transfers not accepted and consequently nothing, or almost nothing, in the way of any paper trails.

The tuckshops in turn buy their goods from the manufacturers or importers, in US dollar cash.

So some manufacturers have come to favour, or even exclusively favour, the tuckshops, will deliver and will give these retailers priority.

There have also been suspicions in the past that when a particular good was in short supply the manufacturer and the tuckshops might have combined to create a corner and done some profiteering, but this is now largely academic since other reforms have made shortages very difficult to arrange, but not, as we saw in the second quarter of last year, totally impossible.

The new regulations make this cosy arrangement between manufacturers and tuckshops impossible. The only effective way round it would be for a bunch of tuckshops to combine into some sort of association that would get a wholesale licence, register for VAT and deal with the manufacturer, but that would formalise the whole operation and bring that wholesaler into the orbit of the banking regulations and the requirement to deal in local currency as well as foreign currency. So the Government and Zimra still win.

The $1 000 modification for existing customers of wholesalers seems designed to leave out, for the moment, the pavement vendors and the stallholders. Technically such a micro-retailer could be the customer of more than one wholesaler, and be able to buy US$1 000 from each, but that is unlikely. However, when you look at the new VAT registration requirements it does appear that any retailer with more than two wholesale suppliers becomes a VAT payer.

This requirement for a receipt also makes it basically impossible for new entrants to enter the informal small retail sector. If you want to set up a selling point now you have to start out as formal. We would expect that as time goes on we can expect to see pressure rising on those relying on the present “grandfather clause” of being an existing wholesaler customer to come under ever more pressure.

Perhaps the limit will be cut from US$1 000 a month to make the more successful stallholders sign up with Zimra, which would be the easiest once the initial rush of those needing to buy more have been processed by Zimra, or perhaps the Government will make local authorities licence these mini-traders.

But that still leaves the tuckshops and a whole range of other small retailers who now cannot obtain any supplies, unless they buy them retail and lose their price advantages, until they take the plunge, register with Zimra and formalise their operations.

And this appears to be the primary goal of the whole exercise, to expand the taxpayer base significantly and bring in a large number of small businesses who simply have not been paying any tax, or for that matter not buying any shop licences.

Minister Ncube has been smart in the route he has chosen. It costs the Government nothing to collect these new taxes, and even Zimra has almost nothing in extra costs, except possibly some customer relations as more sign on, since they now use on-line registration for taxpayers.

The enforcers are the manufacturers and wholesalers, who have to work for Zimra for free in this matter, and even they have little more to do than demand to see the licences, tax certificates or receipts and then refuse to do business with those who cannot produce them.

There will be some who are tempted to cheat of course, but the advantage of using the big boys to do your policing is that there are not that many of them.

It is easy to check a few hundred, or even a few thousand, large businesses with fixed premises and a whole lot of registration requirements and who are already on the Zimra books and make sure they are following the law and the rules.

And then they are the ones who, out of sheer self-interest since they want to keep and expand their customer base, will probably have to work with what will otherwise be their former customers to help them register with Zimra, the big step. We have already suggested that this could be cheap, access to an internet-linked computer and a staff member telling the customer how to reach Zimra.

Generally we think big business will come to accept and then support the changes. They do apply to everyone after all so there no special groups who are exempt or who can get ahead under the table. In any case everyone tends to agree that those who should be paying taxes must pay taxes, and not just leave it to those who happen to be on Zimra’s books.

When everyone who earns money and does business is on Zimra’s books then life will not just be fairer all round, but Minsiter Ncube and his successors can spread the load a bit and not just hit the major taxpayers.

Even if you get just a few hundred dollars a month in VAT off a small tuckshop, multiply that by a few thousand and you can start seeing the extra cash flowing into the Treasury.