Rethinking formalising of small business

01 Jun, 2018 - 00:06 0 Views

eBusiness Weekly

Kudzai M. Mubaiwa
There is an informal and unpublished “template” of what formalising a business means in Zimbabwe.

The general expectations are that one acquires papers in the form of registration documents and their enterprise is recognized as a separate legal persona — as a company or private business corporation.

Subsequently, they open a company bank account and get a mobile money merchant code, likely using the guidelines shared in the last column, and ultimately register for tax.

Such business may ensure that they are professionally branded, and have a digital presence through a website, branding and social media sites pages, common of which are Facebook pages, Twitter handles, LinkedIn profile.

These last tools could typically be used as the default platform for engagement between the business and its’ customers. Once those basics are in place, one can create a decent resume for a ward — commonly referred to as the company profile — a document that gives the company’s background, past transactions, and presently on-going work. My view is that it is much deeper than that, formalising must stretch to cover the conduct of a company’s workers (many have no regard for customers); and the in-house processes and systems.

Different types of companies work differently, however all must be run in an efficient and effective manner, in every respect. Out of such will emerge strong local companies that can contribute to the national cake : through their taxes.

Those who sing the song are usually the very tax collectors, hence the whole exercise ceases to be about growing micro-enterprises into bigger business, it becomes an avenue for short and medium revenue collection, rather than growing a strong robust ecosystem of start-ups solving difficult and important problems.

I overhead a woman last week speak on how, many years ago, she had tried supplying a public institution with certain goods and had to be turned away because she was lacking the necessary “formalisation”.

Furthermore, her husband warned about engaging government at all, as he surmised that once one got into that system they would have to keep giving government money through tax no matter.

The misconceptions around initial and monthly registration and tax issues are staggering and most micro-enterprise owners then tend to completely reject formalising in fear of losing profit.

Until recently, tax returns and banking were all done in person at the nearest ZIMRA/Banking Hall. There are now portals for tax submissions, and mobile banking. The world is changing, so must we.

I am convinced there is a middle way through which we can achieve mutual benefit for regulators and small businesses. One wants to have as many enterprises on board as possible, the other wants as much autonomy as possible.

The one wants to collect as much as possible, the other wants to pay as little as possible to government. As a result the collector becomes more heavy handed whilst the collected from becomes more evasive. But what if registration was as commonplace and as easy as acquiring a mobile SIM card?

There are lessons to be learnt from the telecoms companies, practically everyone now has a phone number or two, barriers are low. They know they will make their money not from selling numbers, but from the airtime credit that will be purchased into eternity.

Government must now take a similar approach, wherein everyone can “register” over the counter, preferably in a one stop shop arrangement, and be allocated a unique business registration number (currently the business partnership number) then be asked to pay a nominal amount each month — much like presumptive tax, only this time the figure is much smaller, easier to collect and easier to forecast.

Small to Medium Enterprises are many in Zimbabwe, and they generate income. Many of them will not register for tax purposes because they think they will have to pay a huge chunk of what they make to government. Many more are not interested in proper bank accounts because they think they will be used as tools for watching their flows and another chunk taken by outrageous bank charges.

Gaining trust will not be easy but it is not impossible. The first step should be starting from where the people are — mostly transacting using phones for information and payments. Whilst Facebook and Twitter are popular, WhatsApp is the real game-changer, with at least 5 times more the users than the previous two combined.

Getting information to SMEs on a new way to register will be easy as there are thousands of business related WhatsApp groups. The actual registration of a company and subsequent registration for tax can be done using a basic website, preferably zero rated to allow easy access with an alternative USSD option.

The recent ZEC exercise has shown that many people are comfortable with using mobile phone for simple 5 step exercises, and even for mobile money, Zimbabweans have mastered the use of the mobile phone for moving money.

Any small business owner can then make periodic tax payments using their preferred mobile money platform, ZIMRA would need to be added in as a merchant. The idea would be to create ranges of presumptive tax for particular types of micro-enterprises and get them to learn the ropes from a very small stage. Only those that have significantly grown would use the more detailed system that is prevailing.

The government can thus easily collect tax and the smallest of businesses can be regarded as formal, albeit at entry level. The bigger picture is what matters, such simple registration will enable us to harvest big data, starting with a count of the economic players, then the sectors they are in, the size of projects. It can further inform demographics, geolocations and be very useful for national programming such as economic zones because the work is data driven.

There must be an incentive for the small business owner to register though — that registration number should grant them free or discounted access to training, funding and market linkages. The opportunity of the internet is something we must begin to leverage in Zimbabwe, our people are ready to build meaningful businesses and contribute to the fiscus. Local economic development can only occur when we involve everyone.

 Feedback: Twitter @kumub, Email [email protected]

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