Economic Boom As Chiwenga Bails Out Struggling Companies

Source: Economic Boom As Chiwenga Bails Out Struggling Companies | ZimEye

By Langton Ncube|Vice President Constantino Chiwenga said government was going to scrap all the debts owed by critical production companies to The Zimbabwe Revenue Authority.

President Emmerson Mnangagwa recently set up an ad hoc committee led by Chiwenga to deal with rising prices.

Chiwenga met captains of industry from across various economic sectors in Harare on Monday. The meeting was attended by representatives of the Confederation of Zimbabwe Industries (CZI), the Zimbabwe National Chamber of Commerce (ZNCC), National Economic Consultative Forum, Buy Zimbabwe, National Bakers Association of Zimbabwe, Stockfeeds Association, Oil Expressers Association of Zimbabwe, Zimbabwe Clothing Manufacturers Association, Meat Processors Association of Zimbabwe, Livestock and Meat Advisory Council and miners.

The meeting was also attended by Reserve Bank of Zimbabwe governor John Mangudya and Industry, Commerce and Enterprise Development Minister, Mike Bimha.

“Chiwenga and central bank governor John Mangudya also agreed with industry to revive companies by scrapping their tax debt owed to the Zimbabwe Revenue Authority (ZIMRA),” a er source who attended the meeting told The Financial Gazette.

“The RBZ governor said it doesn’t make sense for struggling industries, and those that even temporarily closed, to be forced to pay taxes for periods when they were ‘dead’. As such, the government is planning to scrap taxes from as way back as 2009 and allow companies to start on a clean slate,” the source said.

ZIMRA is currently owed over $3 billion in unpaid taxes as companies continue defaulting due to deteriorating economic conditions.

The Financial Gazette understands that other issues also discussed in the meeting included doing away with price controls, the three-tier pricing system, formalising the informal sector and ensuring timely availability of foreign currency to critical areas of the economy.

Chiwenga was said to have reiterated government’s commitment to stabilise the economy by dealing with most factors behind price increases.

One executive who attended the meeting said Chiwenga had promised to reduce fuel taxes without delay.

A top government official who preferred anonymity said the meeting with Chiwenga was “very robust with the business community and government reaching a consensus on the need to re-introduce a social contract and freeze wages and prices for the next six months”.

Government taxes and levies add 63,2 cents and 50,1 cents to the petrol and diesel pump price, respectively. The taxes include excise duty, a Zimbabwe National Roads Authority (ZINARA) road levy, carbon tax, debt redemption and strategic reserve levy. This has resulted in local petrol and diesel prices being far higher than those in neighbouring countries. The country’s petrol prices are currently around $1,39 per litre, while that of diesel is around $1,25 per litre.

Duty is pegged at $0,40 and $0,45 per litre for diesel and petrol respectively; the ZINARA levy is pegged at $0,06 per litre for both diesel and petrol; and carbon tax is at $0,13 and $0,04 per litre for diesel and petrol respectively.

Government also collects a debt redemption levy, introduced to clear a US$170 million Noczim debt, of $0,013 and $0,067 per litre for diesel and petrol, respectively.

The strategic reserve levy attracts a rate of $0,015 per litre for both diesel and petrol.

Prices of many basic commodities, including meat, milk and eggs have risen beyond the reach of many. Bread prices went up by 10 cents in December but producers were forced to reverse the increase after government intervention.

“We understand that the government gets much of its revenue from fuel taxes, but if they can find alternative means of getting revenue and reduce fuel levy this will result in low fuel prices and consequently low prices for basic goods,” said a petroleum industry player.

Oil prices on the international market declined from $123 per barrel in August 2014 to less than $50 per barrel this week, resulting in regional countries such as South Africa and Botswana slashing their petrol prices from an average $1,40 per litre to less than $0,95 per litre.

However, Zimbabwe’s fuel prices, which are set through a pricing model agreed to between the Energy Ministry, Zimbabwe Energy Regulatory Authority and oil companies, have remained relatively high despite carrying a 15 percent component of ethanol. The ethanol component was reduced to five percent this week due to declining sugarcane supplies.

There was a public outcry last December when prices of basic commodities went up by an average 100 percent, allegedly due to foreign currency shortages. Presenting the state of the nation address last month, Mnangagwa implored the business community to show restraint and avoid wanton price hikes.

“such actions raise the appeal of cheaper imports, which has the effect of undermining current efforts to develop the local industry,” said Mnangagwa.