Duty suspension on capital goods a positive move

Source: Duty suspension on capital goods a positive move – NewsDay Zimbabwe

GOVERNMENT’S move to scrap duty on capital goods is a good one as it relieves pressure on the manufacturing sector.

Zimbabwe had over-relied on imported finished products since the turn of the millennium when the manufacturing industry took a nose dive. The tax regime had made importation of raw material difficult for the manufacturing sector and in the end made finished goods too expensive.

In a move to revive the manufacturing sector that was almost going extinct, government suspended duty on capital goods, a move that will go a long way in boosting production of local goods. Sectors that were hard done by the tax regime included mining, agriculture, tourism, energy, and health.

Presenting the 2022 national budget last November, Finance minister Mthuli Ncube advised of government’s intention to extend suspension of duty on capital goods with effect from January 1 2022.

The move has been welcomed by industry as a shot in the arm and will revive the manufacturing industry as capital goods make it possible for industry to produce at a higher level of efficiency.

Former Confederation of Zimbabwe Industries’ president for Matabeleland chamber Sherpard Chawira said: “It’s something that we needed as industrialists looking at the nature of our industry that is operating with antiquated machinery.

“Nearly every company in the manufacturing sector needs retooling at the moment and that will do a long way because in the absence of long-term finance in the economy, suspension of duty (on capital goods) goes a long way in terms of supporting that retooling initiative.”

With the industry in the doldrums, Chawira is correct that the scratching of duty on capital goods will increase production as it will help industries retool and do away with archaic machinery. Therefore, the suspension of duty on capital goods will result in a cut in capital expenses.

It is our hope that industry will not abuse this duty waiver to smuggle luxuries such as cars that will not help in the production of goods and services. With the high rate of corruption in the country, there is a possibility that some unscrupulous business people will use the scrapping of duty on capital goods to enrich themselves at the expense of production.

The suspension of duty is likely to help curb cheap Chinese products that were being dumped into the country as local firms could not afford to fill the gap. China uses its economic dominance to dump its goods in developing countries where it has registered a foothold and this practice has anti-competitive effects on domestic markets. Although cheap imports benefit consumers in the short-run, their long-term effects on economic development cannot be overemphasised.

The Chinese do not bring capital goods by finished goods that promote a consumptive culture.