Business defies govt directive

October 21, 2021

TINASHE MAKICHI / LIVINGSTONE MARUFU

A number of local companies have defied a government directive and are pricing above the tolerance premium of 10% on the official rate when selling goods and services, Business Times can report.

Recently, the government promulgated Statutory Instrument (SI) 127 of 2021, which banned them from selling goods and services at an exchange rate above the ruling  auction market rate.

This was softened to a maximum of 10% after a recent meeting involving the officials from the Ministry of Finance and Economic Development and the Reserve Bank of Zimbabwe and business leaders.

However, a snap survey conducted by Business Times this week found that most retailers including pharmaceuticals are still charging for goods using a rate of between ZWL$150:US$1 and ZWL$180:US$1 despite benefiting from the foreign currency auction system.

Some continue to use higher rates of up to ZWL$200:US$1.

Apparently, prices of drugs and other goods this week rocketed again, going beyond the reach of many, piling more misery on the restive population, owing to higher parallel market premiums enjoyed by the US dollar, which has become the preferred currency over the Zimbabwe dollar.

However, pharmaceutical companies are the biggest beneficiaries from the auction system, according to official data obtained from the RBZ.

Retail Pharmaceuticals Association president Luckmore Bhunu told Business Times that the issue of S1 127 of 2021 only applied to those accessing foreign currency from the auction system.

“Those that are in question are not retail pharmacies but they are community pharmacies. For our members we have a policy that they should not use a rate but rather put a replacement mark up,” Bhunu told Business Times.

“It is also important to note that the SI 127 of 2021 was clarified that it only applied to those accessing foreign currency from the auction and most community pharmacies have not been getting foreign currency from the auction system and only wholesalers have been accessing foreign currency maybe for importing.”

It its latest report, Imara Asset Management chief executive officer John Legat, said most companies continue to ignore official foreign exchange auction rate.

“The net effect of using their own spot or ‘transactions-based’ exchange rate rather than the official rate was to inflate their profits and balance sheet by around 17% on average.

“This allowed them to pay a higher dividend to their shareholders but we assume a higher amount of taxation to ZIMRA as well. It will be interesting to see whether other companies do something similar going forward,” Legat said.

The government enacted Statutory Instrument 127 of 2021 which empowered the central bank to whip into line any company that abuses the forex that they have obtained from the auction.

But given that the auction is taking at least  two months to settle bids, Legat said no company was willing to use the official exchange rate as they are procuring the majority of their  greenback on parallel market.

“ …Directors pointed out that even if they access money from auction, they would not receive the foreign exchange in sufficient amounts to satisfy their needs and in a timely manner. Instead under a proposed amendment to International Accounting Standard 21, which focuses on a lack of ‘exchangeability’ between two currencies, they have chosen to estimate the spot rate at the time,” Legat said.

He said the Simbisa Implied Rate which compared the US$ and the ZWL$ prices of a ‘two piecer and chips’ was giving consumers a better reflection of what the ‘street’ was prepared to offer US$.

Legat said  it was difficult for businesses to run on that official exchange rate basis from a working capital perspective.

“That in turn encourages businesses to shun the auction and look elsewhere either in the parallel market, or simply to charge for goods and services in US dollars to boost US$ revenues. This boosts dollarisation,” he said.

Legat said there  had been intrigued to read reports from corporate management during the year praising the success of the foreign exchange auction system for bringing about stability and the revival in the economy.

The Imara chief said ‘stability’ is probably the wrong word to use; the auction rate – which is set by ‘diktat ‘- might have been stable but much of the economy has been growing rapidly thanks to a good agricultural season, growing mining production, increased private demand for construction material and high government expenditure on infrastructure projects!

Over the past weeks, several executives were arrested and arraigned   before the courts for violating the SI 127.

The recent clampdown on businesses has mostly targeted various retail and wholesale outlets.

But, no executive from pharmaceuticals has been arrested for violation of the SI 127.

It is not the first time that pharmaceuticals have  collided with government.

Recently, there was a clampdown  on rogue pharmaceuticals that have been charging foreign currency but remitting value added tax (VAT) to the government in local currency.

Like any tax, VAT is vulnerable to evasion and fraud. But its credit and refund mechanism does offer unique opportunities for abuse, and this has recently become an urgent concern in Zimbabwe.

Most pharmaceutical companies across the country have been charging in foreign currency but eventually issue receipts with Zimbabwe dollar denominated currency.

Like other taxes that are basically self-assessment systems VAT according to experts requires a firm enforcement system with known and applied penalties culminating in (although rarely used) criminal prosecution.

The target on pharmaceuticals came after President Emmerson Mnangagwa has vowed to take the war to the country’s “political detractors, elite opportunists and malcontents” who are pushing a “nefarious agenda to cause regime change” as the ruling party tackles the economic challenges that the country is presently facing.

President Emmerson Mnangagwa labelled those involved in various nefarious activities as the invisible enemy.

The economy of late has been going through turbulent times notwithstanding the fact that the government has put in place a raft of measures and interventions to spur economic growth.

 

 

 

 

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