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Awareness and compliance levels of informal traders with regards to their

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African J. Economic and Sustainable Development, Vol. 2, No. 4, 2013 297

Awareness and compliance levels of informal traders

with regards to their presumptive tax obligations:
a case of Harare central business district informal
traders

Tatenda Dalu*, Vincent Gamuchirayi Maposa,

Tapiwa Dalu and Stanford Pabwaungana
Business Research Unit,
Dennis and Duncan Technologies,
13 Eastcot Avenue, Paddonhurst,
Bulawayo, Zimbabwe
E-mail: dalutatenda@yahoo.co.uk
E-mail: vgmaposa@gmail.com
E-mail: tpdalu@gmail.com
E-mail: spabwaungana@zimra.co.zw
*Corresponding author

Abstract: The study investigates the awareness and compliance of the informal
sector traders in the Harare CBD with a specific objective of recommending
policy. By administering an interview questionnaire to 50 respondents, the
study finds out that most of the informal traders are not registered, transact in
cash, are not knowledgeable about their presumptive tax obligation, do not file
returns and there has been no follow ups by the revenue authority. The study
therefore recommends more focus to be put on client education, follow ups and
proper administration of statutes to bring the informal sector in the taxation
mainstream.

Keywords: informal sector; taxation; tax evasion; compliance cost; awareness.

Reference to this paper should be made as follows: Dalu, T., Maposa, V.G.,
Dalu, T. and Pabwaungana, S. (2013) ‘Awareness and compliance levels of
informal traders with regards to their presumptive tax obligations: a case of
Harare central business district informal traders’, African J. Economic and
Sustainable Development, Vol. 2, No. 4, pp.297–308.

Biographical notes: Tatenda Dalu is affiliated with the Business Research

Unit, Dennis and Duncan Technologies (DDTEC), where he works as a
part-time researcher. He holds an MSc and currently pursuing his PhD with
Rhodes University.

Vincent Gamuchirayi Maposa is a former Research Fellow with DDTEC. He

holds a BSc (double major) in Statistics and Mathematics and is currently
pursuing CFI Certification Studies.

Tapiwa Dalu is a part-time researcher with DDTEC and he currently holds a

BSc honours in Economics from the Department of Economics, University of
Zimbabwe. His area of speciality is on audits and taxation.

Copyright © 2013 Inderscience Enterprises Ltd.

298 T. Dalu et al.

Stanford Pabwaungana is a part-time researcher with DDTEC and he currently

holds an MSc in Economics from the Department of Economics, University of
Zimbabwe. His areas of research are on taxation and trade.

1 Introduction

The informal sector has been hugely ignored since its evolution, it has been seen as a
marginal or residual activity but nowadays it is considered as a central aspect of the
economic and social dynamics of any country especially developing nations (Joshi and
Ayee, 2002). Recently, it has come to light that an informal sector is of paramount
importance to economic development. Studies have shown that in nations in economic
collapse, the development of an informal sector helps to ease unemployment problems
which ultimately lead to rise in income levels translating into the reduction of poverty,
reduced crime rates and improved standards of living. As incomes are raised this also
widens the tax base which creates more revenue for the state. The informal sector has
enormous revenue potential given the range of commercial activities that are undertaken
in this sector. Hence, the need to bring it within the tax net as part of efforts to enhance
domestic revenue mobilisation and encourage fair play (Sanyang, 2009).
Since the informal sector forms a significant and growing proportion of the economy
in developing nations nowadays and this has attracted growing interest from governments
on potential benefits of taxing the informal sector but however little is known (Joshi and
Ayee, 2002). Although the informal sector is growing, it has been characterised by
underreporting of taxable income, tax evasion which leads to large budgets deficits and
failure of the fiscus plan. The non-compliance of the informal sector in terms of payment
of taxes also imposes a tax burden on the compliant registered tax payers as they are left
to pay a host of taxes imposed by the state in a bid to raise revenue.
Zimbabwe’s economy has been no exception; it has grown to be highly informal over
the past decade and as high as 60% of GDP (Schneider, 2000). Unemployment has been
at its peak, levels of income have gone down and standards of living greatly reduced.
With formal employment difficult to come by, this has prompted the populace to be
engaged in informal employment. Due to that the levels of employment and capacity
utilisation were going down in the industry, the tax base also shrank. The Zimbabwean
government decided to introduce presumptive tax as a way of taxing the informal sector
and increasing the tax revenue stream.
The presumptive tax notion was introduced in Zimbabwe with the view of expanding
the tax base which would ultimately result in increased tax revenues. The presumptive tax
revenue head has been performing poorly such that its revenue is classified under other
taxes in the 2009 (Zimra Chairman Statement, unpub. report) and 2010 years of
assessment, with most of the economic activity taking place in the informal sector. This
warrants an investigation on the level of awareness and compliance of the informal sector
regarding their presumptive tax obligations.
Literature on the non-participation of the informal sector in terms of payment of taxes
is not available in Zimbabwe. This study therefore aims to unlock the reasons why the
informal sector is not remitting presumptive tax and the extent of knowledge possessed
by the informal traders regarding their tax obligations. A host of studies have focused on
the significance of the informal sector in relation to the formal sector but little is known
 Awareness and compliance levels of informal traders 299

about the informal traders’ decision to pay taxes (Gerxhani, 1999). They need to
investigate on why the growth in informal sector has not translated into growth in
presumptive tax revenue.
The failure to incorporate the informal sector on the tax scene acts as an incentive to
the compliant taxpayers to move out of the formal sector to the informal sectors to avoid
payment of taxes. In this regard this study comes at an opportune time to give light into
the operation of the informal sector and help introducing tax measures that will
incorporate the informal sector in the taxation mainstream.
By meeting its tax obligations the informal sector helps to provide higher quality,
better paid, more sustainable employment, reinforce the social contract between citizens
and their state, strengthen the reliability of agreements between firms, and build investor
confidence. It also helps to broaden the tax base (potentially permitting lower taxes).
Informal sector participation in mainstream taxation also enables the strengthen
frameworks for policy advocacy through increased information available about
enterprises and reduce information asymmetries and facilitate deal-making, trade and
investment.
The objective of the study was to investigate levels of awareness and compliance of
the informal traders with regards to their presumptive tax obligations, the study also seeks
to find out if there has been enough follow ups and client education from the Revenue
Authority and recommend policy.
The study wanted to find out if, the informal traders have a know how of the
presumptive tax and its implications on them? What is their level of compliance? Have
the small or informal traders been educated about the presumptive tax?

1.1 Zimbabwe
Zimbabwe is a landlocked country situated in Southern Africa. It is bordered by South
Africa, Mozambique, Botswana and Zambia with the capital city, Harare having an
estimated population of 4.5 million (UN, 2010; WHO, 2011). Population in 2009
according to the World Health Organization was estimated at 12.5 million with annual
population growth rate of 0.8% and the population growth rate is depressed by an
HIV/AIDS adult prevalence rate estimated to be 14.3% (UN, 2010; WHO, 2011). Gross
domestic product (GDP) based on purchasing power parity (PPP) estimate for 2011 was
US$6.127 billion with a per capita $487 while the GDP (nominal) estimate was
US$9.323 billion with a per capita $741 (IMF, 2011).
Zimbabwe’s wide range of natural resources makes agriculture and mining the main
pillars of the economy. Agriculture and industry account for about 17% and 29% of GDP,
respectively (IMF, 2011; MFS, 2012). The confiscation of the farmland was affected by
continuous droughts and lack of inputs and finance led to a sharp decline in agricultural
exports, which was traditionally the country’s leading export producing sector. Mining
and tourism have surpassed agriculture. As a result, Zimbabwe experienced a severe
hard-currency shortage that led to hyperinflation and chronic shortages in imported fuel
and consumer goods (IMF, 2011).
Inflation rose from an annual rate of 32% in 1998, to an official estimated high of
11,200,000% in August 2008 according to the country’s Central Statistical Office. This
represented a state of hyperinflation, and the central bank introduced a new 100 billion
dollar note. As of November 2008, unofficial figures put Zimbabwe’s annual inflation
rate at 516 quintillion percent, with prices doubling every 1.3 days. Zimbabwe’s inflation
300 T. Dalu et al.

crisis was in 2009 the second worst inflation spike in history, behind the
hyperinflationary crisis of Hungary in 1946, in which prices doubled every 15.6 hours
(Berger, 2009). In January 2009, Zimbabwe introduced a new Z$100 trillion banknote.
On 29 January, in an effort to counteract his country’s runaway inflation, acting Finance
Minister Patrick Chinamasa announced that Zimbabweans will be permitted to use other,
more stable currencies such as the Sterling, Euro, South African Rand and the United
States Dollar to do business, alongside the Zimbabwe dollar (IMF, 2011).
Since the formation of the Unity Government in 2009, the Zimbabwean economy has
been on the rebound. GDP grew by more than 5% in the year 2009 and 2011. Growth is
forecast to reach 8% in 2010, buoyed by high mineral prices and the improving
agriculture sector. Mining output rose 47% in 2010 due to increased investment in the
sector. Likewise, agricultural output rose 34% in 2010, largely due to an almost doubling
of tobacco production (IMARA, 2011; MFS, 2012). Exports were estimated to have
increased by 35% in 2010 to $2.1 billion while imports increased by 13.5% to
$3.6 billion. There has been little change in social conditions, however, with the poverty
rate currently estimated to be more than 70%. Problems still facing the government
include a large external debt burden and insufficient formal employment (MFS, 2012).
The pan-African investment bank IMARA released a favourable report in February 2011
on investment prospects in Zimbabwe, citing an improved revenue base and higher tax
receipts (IMARA, 2011).

2 Literature review and theoretical framework

2.1 Conceptual framework

2.1.1 The informal sector taxpaying game in the presence or absence of follow
ups
The model assumes that there is an informal sector in the economy which may decide to
pay taxes or not and a state revenue collecting agent who may decide to make follow ups
on payment of taxes or not. For each action taken by the player there is a payoff
associated and each player knows the actions one of them may take but there is no
imperfect knowledge on the action taken by the informal sector until a follow up is made.
The first symbols in the box show the payoff for the informal sector and the second
shows the payoff to the revenue authority. Each player will chose to take the action that
yields the highest benefit to them. Table 1 shows payoffs based on the actions that the
two player (i.e., the informal sector and the revenue authority) basing on their choices the
benefits to each player are shown in the pay-off matrix.
Table 1 Revenue authority

Follow up ( detection) No follow up (no detection)

Paying taxes Y: R – C Y: R
Not paying proper taxes Y + E – P: S + (P – C) Y + E: S

Informal sector
where
 Awareness and compliance levels of informal traders 301

Y the amount net of taxes that the informal trader realises

R tax receipts from informal traders for a true return
C cost of follow up
E the gain accruing to an informal trader for misrepresenting tax returns
P the penalty of submitting a false return levied after a follow up has been made.
(P − C) > R − S > 0
R>S
P>E
The Nash equilibrium of the game becomes (paying taxes: no follow up). The result
shows that the ideal situation is that mechanisms to be put in place such that informal
sector pays taxes and follow up costs be minimal.

2.1.2 The indifference curve approach to informal sector taxation versus the
state
The state is assumed to be a utility maximising agent, whose utility increases as the
business profits (π) and tax revenue collected (t). On the other hand the informal sector is
modelled with a utility function consisting of the tax paid (t) and the retained income
after taxation (r). The utility function of the state is given by Ug = U (π; t) and that of the
informal sector is given by Uis = U (t : r). The indifference curve for the state are
concave since tax paid is considered to be a bad and the retained income (r) is a good.
U’tp (t : r) < 0 and U’r (t : r) > 0. The indifference curves for the informal sector are
convex to the origin and both the tax received and business profits are goods to the
informal sector. An increase in one of them results in an increase in utility U’gt (π; t) > 0
and U’gπ (π; t) > 0. The utility (satisfaction) of the state increase as the indifference
curves move away from the origin and those for the informal sector. Ug1, Ug2 and Ug3
show the utility levels of the state and the utility increase as we move in the direction of
the connector increase whilst Uis1, Uis2 and Uis3 show the utility levels of the informal
sector which increase as we move in the opposite direction of the connector (Figure 1).
The informal sector tries as much as possible to lower its tax revenue and retain most
of its income (business profits) while the state on the other end strives to increase
business profits and tax revenue. The equilibrium is found at the point of tangency
(Pareto optimality which entails that no one of the actors can make itself better off
without making another worse off. The connector shows all the possible equilibria that
can exist in the economy.
• Intuition: there is antagonism between the informal sector and the state in terms of
payment of taxes. The informal sector tries to lower its tax obligations whilst the
state seeks to raise revenue for administration of fiscal policy and budget. As the
informal sector wishes to lower its tax obligation, this may result in tax evasion
hence states should focus on the informal tax payers rather focusing on large
taxpayers although the revenue stream might be lower than that realised from
large taxpayers.
302 T. Dalu et al.

Figure 1 Diagrammatic representation of government and informal sector preferences

2.2 Theoretical and empirical literature

Martinez-Vazquez (2009) argues that a common notion is that those in the informal
sector sometimes also referred to as the ‘hard-to-tax’ (HTT) sector. The informal sector
taxpayers are those who often fail to register voluntarily and even when they do register,
they generally fail to keep appropriate records of their earnings and costs, they often do
not promptly file their tax returns, and they frequently tend to be tax delinquent.
Terkper (2003) maintains that informal sector do not comply with paying taxes
because the authorities do not have effective mechanisms for controlling small to medium
taxpayers, there is inadequate recordkeeping, weak financial or internal controls by a
network of close family members, business and private transactions are not separated.
The informal traders have no board or committees (such as audit committee) such that
there is falsification of accounting transactions. Terkper (2003) also cites the absence of
clear accounting guidelines tends to increase compliance costs and dissuade informal
traders from meeting their tax obligations. Terkper (2003) adds another dimension to
Martinez-Vazquez (2009) in that his study looks on the strength of the enforcement
agency and the effect of family ownership which has no board committees on the
payment of taxes.
Stern and Barbour (2005) maintains that most small enterprises in the informal sector
in Africa shun the formal sector and continue not paying taxes because they do not have
an incentive to join the formal economy since the perceived costs outweigh the perceived
benefits. Stern and Barbour (2005) further states that the cost of monitoring and
collecting taxes from small businesses usually outweighs the revenues generated by small
businesses and the revenue authority resources are scarce. Stern and Barbour (2005)
reinforces the assertion by Bird and Wallace (2003) that revenue authorities are resource
 Awareness and compliance levels of informal traders 303

constrained but it further brings in that the cost of monitoring the informal sector are
higher than the revenues realised from the sector, which is a possible explanation for Bird
and Wallace (2003) argument that the revenue authorities seem to concentrate on large
taxpayers.
USAID (2005) report that in the Small Business Project’s (SBP) compliance cost
survey of the private sector in South Africa, 38% of informal entrepreneurs identified
taxation as the biggest disincentive to registration. Informal enterprises are reluctant to
join the tax regime for several reasons such as that they are worried about the level of
taxes, do not understand how to comply with often complex requirements, fear the
consequences of bringing themselves to the attention of tax officials, and they do not
believe that they will receive services in return for payment.
Obri (2006) focusing on Nigeria, cites poor record keeping culture, which is caused
by high level of illiteracy and minimal record-keeping and in some cases keeping
different records for different purposes, (some sets of records may be to enhance the
ability to obtain loans from banks while another may be kept for tax purposes) as
hindrances to taxing the informal sector Obri (2006) study differs from other studies
(Ayee, 2002; Bird and Wallace, 2003) in that it explicitly exposes that the non-separation
of business and private capital poses a threat in determining the business profits and
thereby the proper tax assessment.
Abrie and Doussy (2006) investigates the tax compliance obstacles encountered by
small and medium enterprises in South Africa. Abrie and Doussy (2006) cites the
complexity of the tax structure the same as Bird and Wallace (2003) stresses, the SMEs
had to comply with 11 different taxes meaning that there is need for proper
documentation of which records are difficult to maintain. The study also cites the lack of
knowledge about the tax implications such as incentives by SMEs is another factor why
the entities do not comply with their tax obligations, empirical results show that less than
50% of the respondents are not aware of the tax incentive available to them.
Weichenrieder (2007) carried out a study in the OECD on taxation of small to
medium enterprises, the study finds out that compliance cost of taxation are
disproportionate when scaled by sales or assets, the compliance costs are higher for
SMEs than larger businesses. In this regard the compliance costs of taxation do matter for
the informal sector to comply with its tax obligations. Weichenrieder (2007) further
cements the assertions by Stern and Barbour (2005) that compliance costs make it
difficult for the informal sector to comply with its tax obligations.
Waweru (2007) maintains that there are problems posed in taxing the informal sector
in Kenya. He cites that the size of the sector poses a problem as it accounts for 58% of
the establishments in Kenya. The presentation also cites the considerable high proportion
of nil and non-filers in the Kenyan revenue authority database as another challenge. In
2006 nil and non-filers accounted for 35% and 38% respectively. The combined
proportion was 73% hence posed administrative challenges in taxing the micro and small
enterprises sector. Another problem is that there is lack of vital statistics on the sector and
most of them belong to the non-commercial community. Waweru (2007) presentation
also gives an insight into the challenges faced in taxing the informal sector and further
cements the assertion in previous studies that factors such as non-filing of returns, cash
transactions and non-recording of transactions are pitfalls encountered in taxing the
sector.
Kimungu and Kileva (2007) exhumes the challenges facing Tanzania with respect to
taxation of SMEs are in particular to those in the informal sector. The challenges may be
304 T. Dalu et al.

due to those traders not having permanent business premises, displaying their businesses
on the streets where they keep on shifting. The record keeping problem is mainly due to
illiteracy on the part of the taxpayers and the high cost of hiring book keeping services,
maintenance of scanty purchase/sales records, lack of Internal controls. In conclusion
Kimungu and Kileva (2007) assert that dealing with small and medium taxpayers is
indeed dealing with taxpayers who have understated taxable income and therefore need
different treatment to make them pay taxes, taxpayers who do not file tax returns or have
failed to submit tax returns.
Kayaga (2007) maintains that governments are unable to put in place systems to
detect incomes in the informal sector as it accounts for 61% of informal urban
employment in Africa. Due to that the informal sector does not comply with its tax
obligations, this tend to overburden the formal sector through heavy tax rates levied on
the sector to raise state revenue.
Pope et al. (2008) reviews the tax compliance costs of small and medium enterprises
in Malaysia. The study maintains that the regulatory burden falls disproportionately on
small and medium enterprises as business in whatsoever form is required by the law to
comply with all relevant legislation including taxation. The cost of meeting such
regulation forms a small percentage of turnovers in large enterprises than in small and
medium entities. Pope et al. (2008) came up with a subdivision of compliance costs as
that of IFC.
World Bank/Price Waterhouse Cooper’s global report on paying taxes state that most
companies in 90% of the surveyed countries cite the following as pitfalls to complying
with tax obligations. These factors include the large number of business taxes to pay the
length and complex administrative procedures, complex tax legislation and high tax rates.
The report also finds a relationship between burdensome taxation and the level of
informality.
From the literature review poor record keeping, cash transactions, complex tax
systems, high tax burden, risk of detection by the tax authority and lack of monitoring
capacity and high compliance costs have been cited as pitfalls to informal sector
complying with its tax obligations. This study maintains that the Zimbabwean
informal sector is not exceptional from other informal sectors worldwide hence the
same factors mentioned in this literature review also affect informal sectors traders to
comply with their tax obligations; hence this study carries out an investigation of these
factors.

3 Methodology

The study employed the primary method of data collection through conducting interviews
with the informal traders. The major focus was on hair salon operators, driving schools,
restaurants. The study employed stratified random sampling due to the fact that the
informal sector is manifested in various ways; it is prudent that every aspect of its
formations is incorporated in this study. Therefore, stratified random sampling therefore
was employed in this study in choosing the observations.
 Awareness and compliance levels of informal traders 305

4 Results

Out of the 50 interview questionnaires attempted to be conducted, the research

successfully got responses from 37 entities (seven were driving schools, nine
taxi-operators, six motor spare dealers, five hair saloons, three carpenters and seven
restaurants) representing a response rate of 74%. On the other 26%, the entities had no
time to respond to the questionnaire and even after leaving it for them to complete, they
did not. This study therefore report results based on the 37 responses.
Most of the informal traders have poor knowledge of the presumptive tax obligation
as evidenced by the results, 24 respondents had poor knowledge, three had fair and six
had excellent knowledge. This shows that the level of awareness of informal traders with
regards to their presumptive tax obligation is low hence translating into non-compliance
and low revenue stream to the fiscus.
From the sample of informal traders who responded tom the questionnaire, ten were
registered with ZIMRA, 24 were not registered and three were in the process of
registration. This shows that a host of players in the informal sector remain unregistered
hence leading to non-remittance of tax. The smaller percentage of registrants is linked to
that the levels of compliance are low as per the analysis. The ten respondents who had
knowledge on presumptive tax are the ones who are registered with ZIMRA and those
with poor knowledge are not registered.
With regards to return filing eight (21%) respondents maintained that they were
paying their quarterly obligation whenever it is due and 29 (79%) were non-filers. This
mainly emanates from the fact that when an informal trader is not aware and not
registered with the revenue authority, the taxpayer will not submit any return. In this
regard return filing is low due to non-registration. This shows that registration per se is
not compliance.
With regards to recordkeeping, six respondents cited that they do not keep invoices
once they issue them and usually do not prepare yearend profit and loss accounts since
these are family owned and the proceeds are used for family upkeep, 23 had partial
records as they cite that they sometimes keep duplicate copies of invoices but however
their records are in order. Eight respondents stated that they keep records. This figure
tallies with those who file returns hence those who file returns are the one who assert that
they keep records and prepare yearend profit and loss accounts. The results reinforces the
results of the studies by Pope et al. (2008) and Kimungu and Kileva (2007) who cite poor
recordkeeping as a hindrance to informal sector meeting its tax obligations.
Thirty-one (83.8%) of the respondents stated that they use cash only as a medium of
exchange whilst 0% uses the bank only, six (16.2%) use the both cash and bank as
mediums of transactions. For a taxpayer to register with ZIMRA there is a need for a
bank account hence the small percentage that transact through the bank and are likely to
be those registered with ZIMRA. The results of the study further cements the arguments
by Ayee (2002), Terkper (2003) and Quadri (2010) who argue that the fact that the
informal sector operates on a cash basis it is difficult to tax them and audit their
transactions.
In terms of follow ups from the revenue authority, seven respondents maintained that
they have been visited by Zimbabwe Revenue Authority regarding payment of taxes and
these were mainly into the retailing motor spares. Twenty have not been visited by the
revenue authority and ten do not remember the last time they were visited or followed up
306 T. Dalu et al.

by ZIMRA. This shows that not enough effort has been put in trying to bring the informal
sector in mainstream taxation.
The analysis showed the most traders in the informal sector have a low risk
perception of being detected by the revenue authority. They assert that it poses no risk in
unearthing evasion of tax. Twenty respondents cited that they have no risk of being
detected the figure coincides with those that have not been followed up by ZIMRA. This
further cements that as there are no follow ups being made on the informal sector traders,
there is little or no risk of being detected when operating in the informal sector and not
meeting tax obligations. There is a low proportion of the respondents who maintain that
there is high risk, only four out of the 37 respondents and these are registered entities
who are sometimes audited. Five perceived that there is average risk and the other eight
maintain that there is low risk of being detected.
They is a general lack of knowledge about presumptive tax obligation and it is
unsurprising that most respondents were not able to rate the burden presumptive tax
places on them. Twenty four informal sector traders noted that they did not know whilst
only two noted that the burden was too high, three responded that it was high and the
other six argued that it was fair. Findings reveal that most of the traders in the informal
sector are not registered, operate on a cash basis, poor recordkeeping and documentation
and do not file returns. This concurs with previous assertions and studies have
maintained.

5 Discussion

The study investigated the awareness and compliance levels of the informal sector traders
with regards to their presumptive tax obligations. By employing an interview
questionnaire as a method of data collection, results showed that that most of the informal
sector traders are not registered. Most of the informal sector traders are not
knowledgeable about their obligations hence they do not file returns and do not comply
with tax obligations.
Just as other studies by Terkper (2003) and Quadri (2010) have found most of the
informal traders use cash as a medium of transaction and usually there is poor
recordkeeping and since the proceeds from the business are used for family up keep,
informal traders do not prepare basic yearend profit and loss accounts. There have been a
few number of follow ups by the revenue authority to enforce payment of presumptive
tax in the informal sector. This study therefore recommends policy based on these
findings.
There is need for taxpayer education to enhance voluntary compliance besides
carrying follow ups but it should be noted that although educating clients is necessary it
is not sufficient in enhancing compliance, hence there is need to make follow ups. Tax
payer education can be through preparing clear explanatory material that tells taxpayers
what they have to do, when they have to do it, and how to do it. The educating material
should make use of simple language in explanatory material and establish a small
taxpayer queries in all tax offices to answer questions from taxpayers and conduct
seminars and advisory visits for new taxpayers. Follow ups will help bring defaulters into
the tax net. In this regard the revenue authority should work closely with the office of the
Registrar of Companies to locate small entities registered and be able to make follow ups.
 Awareness and compliance levels of informal traders 307

There is also need to properly administer the statutes on part of the Zimbabwe
Revenue Authority. Since the informal traders are employers they are required by Section
73 as read with paragraph 13 (2) of the 13th schedule of the Income Tax Act (Chapter
23:06) to register with the revenue authority ZIMRA within 14 days we should not
encounter cases where one is not registered if the is proper administration of the statutes.
The audit section focus should also target the small and medium enterprises to bring
them on the tax net. Since the audit has got financial target to meet they usually focus on
large clients to meet this and tend to ignore the small to medium enterprises and the
informal sector. In this regard the audit section should add more dimension to their
performance measures that are of auditing informal sector and bringing them into the tax
net and monitoring compliance.
On the part of the economy as a whole there is urgent need to promote the use of
banking services and reduce the cash economy and provide more resources for
intermediation by the formal financial. From the research most of the informal sector
traders do not transact through the bank which makes even the audit tasks tedious.
There should be more research in this area especially the developed nations to note
how the informal sector has been brought into mainstream taxation. As ZIMRA we
should learn from other revenue authorities and be innovative in coming up with the best
possible ways of taxing the informal sector.
As the study was limited to Harare CBD informal traders I urge researchers to take
these topics further to other areas, resources constraints (time and financial) did not
permit this study to extend beyond Harare CBD. In future the study methodology can
also make use of econometric models which tend to explain individual decision to
participate in the informal sector using behavioural models.

Acknowledgements

To GOD be the glory and may the works of our minds be fruitful to the LORD. The
authors would like to thank Dennis and Duncan Technologies (DDTEC) P/L Business
Unit for the funding. In conclusion were grateful to the ZIMRA Customs and Taxes for
the knowledge they imparted.

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