Noose tightened on retailers using blackmarket rates

Source: Noose tightened on retailers using blackmarket rates | Herald (Top Stories)

Prof Ncube

Africa Moyo-Deputy News Editor

Retailers that continue to flout foreign currency regulations by setting prices in US dollars and then converting at the blackmarket rate will have their operating licences immediately suspended while the Financial Intelligence Unit of the Reserve Bank of Zimbabwe is now closely monitoring transactions and taking action against perpetrators.

Finance and Economic Development Minister Professor Mthuli Ncube in a statement yesterday, partly in reaction to the outcry after some top retailers were caught using exchange rates well above even the present manipulated blackmarket rate, gave the positive indications that the economy was sound and the steps are being taken to prevent manipulation.

Despite the fact that foreign currency inflows exceed foreign currency outflows, that is that Zimbabwe has adequate foreign currency although the actual flows can jam, fast food outlets, hardware shops, pharmacies and some huge supermarket chains are abandoning use of the auction rate and returning to black market rates when pricing.

Prof Ncube noted that at the moment Zimbabwe has foreign currency reserves totalling US$3 billion. Of this, US$1,8 billion is held by the private sector, generally the unspent portion of the retained export earnings, and the other US$1,2 billion is held by the State, which includes the US$961 million that arrived recently from the IMF.

Curiously, some of the companies that are undermining the local currency by following the blackmarket rate, are refusing to award salary increases to their employees, while some that trade exclusively in foreign currency, continue to churn out receipts in local currency so as to evade tax payments in forex according to the law that requires taxes to be paid in the currency the income was earned. 

This means, for example, that VAT on goods sold in foreign currency should be paid in foreign currency, while VAT on goods sold in local currency can be in local currency. 

But after a consumer bought two identical meals from a prominent fast food outlet in Zvishavane on Wednesday, one for US$1 and a similar one for $200 in local currency, and circulated the receipts on social media, many citizens protested resulting in Prof Ncube and the Reserve Bank of Zimbabwe (RBZ) intervening.

In a Tweet, the RBZ said: “The Financial Intelligence Unit is investigating allegations of currency manipulation and pegging of the ZW$ at 200 to 1USD circulating on social media. Perpetrators shall be brought to book.”

Twitter users praised each other for “exposing the rot” among retailers which has seen many hardworking citizens watch helplessly as their earnings are wiped out by greedy retailers and economic saboteurs that manipulate the currency by pushing up the rate indiscriminately.

Prof Ncube’s more lengthy statement looked at both the solid fundamentals as well as the abuses and the need to hammer them. Government, through various agencies, was instituting various measures to curb illegal trade in foreign currency and “its associated twin evil; that of parallel market benchmarking or indexation of prices of goods and services at parallel market exchange rate”.

“The recent resurgence of these practices, which have been identified as significant contributors to price instability in the economy and are imposing significant downside risks to macro-economic stability, and the erosion of domestic and international competitiveness is therefore a cause for serious concern,” said Prof Ncube.

Recently, the RBZ, working closely with the FIU had begun a process of identifying and prosecuting perpetrators of blackmarket activities.

The initiatives by the RBZ have full Government backing and the Ministry of Finance says it will further strengthen the efforts to fight manipulation of the local currency by saboteurs. 

Other measures will see the Zimbabwe Revenue Authority (Zimra) carrying out impromptu audits of corporate activities with a view of quantifying potential liabilities arising out of illegal foreign currency trading.

“The Zimbabwe Revenue Authority will also be carrying compliance audits with respect to compliance with Location Tax introduced during the 2021 fiscal year,” said Prof Ncube.

Besides the need to pay taxes in the same currency as the income or revenue streams, tax audits could also uncover undeclared profits from under-the-counter dealing.

The FIU will continue to closely monitor and analyse financial transactions to identify, expose and take action against perpetrators of money laundering and other financial crimes. The capacity of the PIU and other law enforcement agencies to investigate and prosecute violations of the Bank Use Promotion Act as well as other laws will be enhanced.

“Regulatory bodies including the Public Accountants and Auditor Board, will also be working on a framework to impose appropriate financial and professional sanctions on members of the accounting, auditing and other professions who may be complicit in superintending over illicit affairs by corporate entities which they are charged with running. 

“Business who disregard the law and continue to price their goods on the parallel market rates will have their licences suspended.”

Citizens have been encouraged to report to the FIU and the National Economic Conduct Inspectorate all businesses that directly or indirectly benchmark prices at black-market exchange rates.

Zimbabwe introduced the foreign currency auction system last year to bring stability on the market after businesses increased prices in response to blackmarket rates for forex. The auctions are largely satisfying the requirements for those who need foreign currency for production and for essential imports.

The move saw price stability as most traders used the auction rate to set prices. However, in recent weeks, the forex rate has been rising gradually on the black-market resulting in many traders, including those that benefit from the auction system, setting prices at the illegal market rate.

Some of the beneficiaries of the auction system are understood to be offloading the RBZ forex on the parallel market, without using it to improve their businesses.

The central bank has since named and shamed up to 77 illegal forex dealers that are manipulating the currency and more critically has frozen their bank and money market accounts and taken other steps to make it impossible for them to continue in that business.

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