THE Zimbabwe National Chamber of Commerce (ZNCC) this week escalated business’s push for an overhaul of the tax regime, as it warned the government that high fuel import taxes could hold back industries’ efforts to compete in the African market.
In submissions to the Ministry of Finance outlining business’s expectations for the 2022 national budget, Zimbabwe’s second largest business lobby said tax cuts will be important if Harare hopes to drive economic recovery through the African Continental Free Trade Area (AfCFTA).
AfCFTA is a US$3,2 trillion bloc that has lined up a string of measures, including eliminating tariffs on 90% of goods originating from the continent of 1,3 billion people.
Last month, the CEO Africa Roundtable said AfCFTA had the potential to propel re-industrialisation in Africa through its tariff and non-tariff barrier reductions that are expected to increase intra-continental trade. The United Nations Economic Commission for Africa has predicted that AfCFTA will raise intra-African trade by 15-25%, or US$50 billion to US$70 billion by 2040 compared to an Africa without the bloc.
However, there have been concerns that high production costs and higher multiple taxes levied on Zimbabwean businesses would undermine the ability to compete in Africa.
Already, businesses have said the landed costs of domestic products are much higher than those from other African frontiers.
Zimbabwean industries had hoped that with AfCFTA coming through, they had an opportunity to make up for depressed demand at home, where extensive de-industrialisation has undermined spending power.
In its submissions, the ZNCC said the biggest factor driving high production costs was the fuel tax regime.
“There is a need to scrap the road haulage fuel import duty of US$0,05 per litre so as to reduce the cost of fuel in the economy, while also reducing fuel import duty,” the ZNCC said.
“Zimbabwe has the most expensive fuel in Sadc (Southern African Development Community) and it does not do the country any favour in AfCFTA as well as in competitiveness. Taxes and duties on fuel constitute about US$0,50 on every litre sold, which is too high.
“With erratic power supplies, businesses are resorting to the use of generators, which is more expensive given the cost of fuel,” the ZNCC added.
Last month, the Zimbabwe Coalition on Debt and Development (Zimcodd) also blamed rocketing inflationary pressures on high fuel costs.
Last week, the Zimbabwe Energy Regulatory Authority (Zera) hiked the maximum pump price of diesel to US$1,38 per litre while that of petrol was capped at US$1,40 per litre.
The fuel prices are way above the Sadc averages of US$0,98 for diesel and US$1,01 for petrol.
“Zimbabweans are paying US$0,40 and US$0,39 more per litre of diesel and petrol, respectively, than the regional average,” Zimcodd said in a paper that looked at production costs in Zimbabwe.
“High fuel price is contributing to rising inflation since fuel cost has spill-over effects on other sectors of the economy such as the transport sector.
“The transport sector is key because it covers the transportation of factors of production like labour, industrial inputs like raw materials, and distribution of finished products to various markets,” it said.
In its submission to the government this week, the ZNCC also called for a review of the operations of special economic zones (SEZs), in order to give them a bigger scope.
“The lack of information and unconvincing incentives have seen low uptake of the SEZs initiative by players. SEZs should not be the preserve of the government. It is our recommendation that private SEZs be considered and given way,” it said.
“ZNCC proposes that the Ministry of Finance and Economic Development introduces a 0% tax for a period of 10 years from the first year of commencement of works in a multi-facility economic zone or industrial park, on dividends declared on profits made on exports by companies operating in the economic zones.
“For years 11 to 15, only 65% of profits should be taxed,” the ZNCC said.
It proposed an increase in the tax-free income bracket to below ZW$40 000 (about US$400) in order to cushion low-income earners and also reduce the effect of bracket creep on the few who were awarded salary adjustments in some sectors.
The chamber also proposed that Treasury maintains the current mixed excise system and rates applicable to cigarettes and that the customs duty waiver should be specifically placed on safari game vehicles, tourist buses and coaches for a period of at least two years.
“This should only apply to accommodation establishments, convention centres and tourism enterprises,” ZNCC said.