eBusiness Weekly
Tapiwanashe Mangwiro
Consumers have seen an upward review in fuel by US$0.02 on both blend and diesel despite a fall in the prices of crude oil on the international market in June.
The Zimbabwe Regulatory Authority (ZERA) uses a month minus one (M-1) method of fuel price calculation, which means July 2023 fuel prices are based on international prices of June 2023. However, despite a fall in prices on the international stage a new tax adjustment meant price increments.
ZERA on Tuesday announced that fuel prices for the month will be US$1.57 for blend and US$1.58 for diesel based on M-1 prices.
Last month the Ministry of Finance and Economic Development announced a tax adjustment that all foreign payments will be subjected to a 1 percent intermediated money transfer tax (IMTT).
On May 28, 2023, Zimbabwe’s Minister of Finance and Economic Development, Mthuli Ncube, issued a Statement on Measures to Stabilise the Economy, including measures to address inflation and support the local currency.
In the statement he wrote, “Government will implement the following measures as from 01 June 2023; Introduce a 1 percent tax on all foreign payments; Maintain the USD Cash withdrawal tax at 2 percent…”
Analysts and economists have argued that the increase is minimal but might have a double effect on prices.
Economist Professor, Tony Hawkins, said the additional tax is a burden to the final consumer and it will hit them twice without them knowing.
“For a company that imports it means they have to pay the 1 percent tax on raw materials, which they will obviously push to the consumer. They will now be subjected to a fuel price increase due to the tax on fuel and they will push it again to the consumer,” Prof Hawkins said.
He added that this is the overtaxing that should be dealt with, as long as such taxes are brought up abruptly without consultation they will hit the disposable incomes.
Another economist, Tinevimbo Shava, argued that the effect of the tax will also hit the producer in a bad way as it makes the cost of production higher.
“Companies are going to see an increase in production costs which will see their products being even more expensive because of the extra input stocks. This will see their products facing competition from cheaper imports in the country,” he said.
Prof. Hawkins added that; “This is very punitive to the formal sector and is also threatening the execution of payments through the financial systems as firms try to avoid losing 1 percent of the value whenever they transact outside our borders.”
Zimbabwe National Chamber of Commerce (ZNCC) president, Mike Kamungeremu, said the agenda of the tax is noble and they understand it but it needs some tweaks.
“The tax is for national benefit and we applaud everything that makes government raise revenue, but taxing an already burdened sector might not be wise. Someone might say the US$0.02 increase in fuel is not big but the accumulative effect is big on prices and input costs,” Kamungeremu said.
The ZNCC president argued that Treasury needs to work with business in order to have policies that do not cause harm to either party.
“Treasury needs to tweak the tax and not make it a blanket tax but exempt some payments such as for raw materials and for machinery for retooling in order to not punish those who want to push industrialization. Fuel is a critical raw material so they should also exempt it. For those paying for luxury goods and some finished goods they should pay the tax for the betterment of the economy,” he concluded.
Confederation of Zimbabwe Retailers (CZR) president, Denford Mutashu, said businesses have absorbed the tax in their expenses.
The 1 percent tax on foreign payments has been absorbed by business as a direct cost to doing business.
It has henceforth attracted a marginal increase in prices of goods and services,” he said.
Mutashu believes that the tax is far less than the reprieve businesses got from the increased retentions Treasury parceled out at the same point.
“However, the understanding is that it is a trade off after the government gave in to a number of surrender requirements in a bid to shore up stability. Business should not take advantage of the 1 percent tax to apply speculative pricing across sectors,” he added.
Consensus is that the tax is pushing the burden to consumers as it is an increase in production costs and for some it has a double effect.
