In this discussion we looked at the taxation of the informal sector in Africa. We focused on Egypt, Zimbabwe and Kenya. We had the discussion on 17 September 2020.
Here is a summary of some main points from the discussion.
The informal sector in Kenya comprises of ‘jua kali’ businesses, residential landlords, small scale farmers & fishermen, small retailers, and ‘chamas’. The informal sector comprises of around 57% of the GDP. There are various taxes that are aimed at the sector including, turnover tax, presumptive tax, and tax on residential income. Additionally, the Finance Act introduced minimum tax and digital services tax which are likely to bring more of the informal sector into the tax bracket.
The informal sector is quite significant in Kenya. A lot more still needs to be done to get the informal sector into the tax bracket. Key issues ailing Kenya are, corruption and funds wastage by the government.
The informal sector in Egypt faces similar problems as other African countries like access to finance. The informal sector largely comprises of businesses carried out by individuals. The percentage of informal sector in Egypt is at 55% of the GDP which is quite significant. Often the income from the sector is not included in the tax bracket. Some of the issues that contribute to this failure to tax the informal sector is complexity of the tax laws and corruption.
There are a number of tax incentives available for the informal sector e.g. certain land taxes. Also there is a simplified tax basis for the informal sector targeting micro-enterprises and the Medium enterprises. Listen to the discussion for much more on this.
The informal sector in Zimbabwe is makes up 60% of the GDP. Moreover, the number of informal businesses are increasing. The main contributor to this situation is hyper-inflation experienced in recent years. The hyper inflation caused individuals to move into the informal sector.
Most of the informal businesses are not within the tax bracket. The factors contributing to this include, corruption that kills the morale of business people, complex laws, and pricing disparity. The price disparity arose from the period post use of United States Dollar (‘USD’). In practice it is cheaper to trade in USD within Zimbabwe than local currency. Also, dealing with the informal sector traders tends to be cheaper than dealing with formal businesses. Listen to the full discussion for more.
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