Regularising informal and micro businesses possible with right attitude

THE major development of self-employment within Zimbabwe, and the encouragement of the Government for people to use their growing skills to make a decent living, still needs business law to catch up with this trend.

We have what is known as a large informal sector, which ranges from tiny traders sitting on a pavement all the way up to skilled people with hired labour in light industrial manufacturing and as President Mnangagwa noted yesterday on Workers Day, more effort needs to be made to register these businesses and bring their employees more decisively under the labour laws.

There are efforts using our taxation laws to formalise more micro businesses. When Government agencies or large companies hire the self-employed to make something or build something or provide a particular service, they are supposed to deduct a presumed tax of 30 percent unless the self-employed person can show a tax clearance certificate, which means they are registered with Zimra and submit accounts and pay taxes.

This is a strong incentive for them to so register, since almost all micro-businesses are self-traders under income tax law and benefit from the zero percent tax band and the 20 percent tax band. Few owners of micro businesses climb the scales into the higher tax bands to arrive at the average of 30 percent, roughly the rate that organised companies pay on their profits after deducting all allowable costs and part of their recent investment.

In fact, most owners of micro businesses would pay little or no tax, at least at the beginning of their business career as a sole trader, so would really benefit. But as they grow their income rises, they start employing people, perhaps just temporarily for specific orders, and in theory the labour laws should cut in. Except often they do not since the temporary workers are often family members or neighbours or other very close acquaintances.

But there are safeguards, even in the most informal small business, that must be enforced. Workers need to be in a healthy and safe environment, and this may well require some personal protective equipment, perhaps just safety goggles or overalls, but enough so they do not have to risk their lives to earn enough to eat.

While a lot of payment at this level is either for a day labourer or is piecework, there should be some sort of minimum wage for day labourers. The farming sector and the domestic worker sectors do have these minimum daily rates, since when our labour laws were being created after independence these were the largest sectors where these informal labour conditions existed. They clearly need to be extended.

In many cases there is some informal arrangement about splitting labour charges. For example, a skilled motor mechanic, or plumber, or repair person might bring along a less-skilled assistant to do heavy lifting or hold the tools or keep a light on the job and there is a vague agreement that the labour charge will be split in different percentages. This can work until someone gets hurt or there is a disagreement just what 20 percent of a labour charge actually means.

A lot of this means that formalising micro-businesses, and formalising their labour rules, is not a simple matter and needs careful thought. But something needs to be done and a start needs to be made, starting with the health and safety aspects and working upwards. Workers in the formal sectors are covered by the Workman’s Compensation Act, the ancient origin of NSSA, and they have to be registered, if under 65 and full time, with NSSA for pensions and so on.

The informal sector has none of this, so a person injured while changing a wheel for a backyard motor mechanic, for example, has no comeback.

Even the major switch of so much of the commercial sector towards small businesses has been disorganised and can lead to troubles and disputes. Many property owners in Harare city centre, for example, have subdivided their open floors into small booths and rent them out to small businesses, which is great, but we suspect that some of these flea markets, and even some of those better organised, might well be creating fire hazards or other safety issues.

And when the booth renter brings an assistant, how is that person protected and how are they paid? These are the sort of questions that a lot of the formalisation process needs to address, and needs to address in a way that does not kill the little business, which allows it to grow, but which does encourage fairness and that healthy and safe work environment. It also needs to make sure that exploitation and sweat shops do not arise.

It is fairly easy to regulate large factories and supermarkets, and Zimra and NSSA and other agencies, including the local authority with its fire and health bylaws, can do this very easily. The relevant national economic council can ensure that agreed grading and pay scales are obeyed. In short, such large formal concerns will operate in the way the authorities desire and workforces are protected and taxes are collected.

Even smaller workshop industries and small commercial shops can be brought into this system, and the labour laws do cover contract workers with contracts having to incorporate laid-down safeguards. So even small and medium enterprises can be formalised to a large extent.

So the extension to tiny businesses, the micro enterprises to use the jargon, is not impossible, although it is likely that special regulations might be needed for the tiniest with somewhat simplified procedures.

Zimra, interestingly, with its enthusiasm for wanting to know about potential taxpayers long before they earn enough to pay tax, or more than a few dollars of tax, does have simple registration procedures that are easy to use. The authority keeps its eyes open and as the business grows then does require more in the way of records, special tills and the like.

But there is a practical attitude at that authority that others who need to register informal businesses on their way to formalisation should be following, basically keep it simple for small one-person business with the odd or occasional assistant and then start implementing the rest of the business procedures as they grow.

We need to make it easy for Zimbabweans to start a small business, and even start it at micro level, but we also need to know who they are, where they are and what they do and as the business grows make sure that employees are not exploited, taxes are paid and most important that safety and health standards are maintained. Fortunately the world of ICT and databases makes this registration process and keeping an eye on safety standards very cheap for authorities, who do not need armies of bureaucrats to handle a microbusiness.

So we can have both small businesses ready to grow and formalise and enough basic standards that they can do this without hurting anyone or exploiting anyone. It requires some imagination in the regulating agencies, but that should now be a standard itself in the Second Republic.