Fuel levy hike: Balancing revenue and competitiveness in Zimbabwe

Zimbabwe’s economic trajectory faces a fresh challenge following the introduction of Statutory Instrument (SI) 50 of 2025, which revises the country’s fuel levy structure.

Enacted as an amendment to Section 22H of the Finance Act, the new regulation increases petrol and diesel levies to US $0.2470 and US $0.1870 per litre, respectively.

While intended to enhance government revenue and support infrastructure development, this move raises significant concerns about national competitiveness, inflation, and economic stability.

The increase represents a 19.3% rise for petrol and 27.2% for diesel, shifting the burden onto consumers and businesses alike. Fuel is a fundamental input across all sectors from agriculture and manufacturing to transport and logistics.

Any rise in fuel costs has a ripple effect, driving up operational expenses, increasing the cost of living, and squeezing profit margins. Consequently, the revised levy threatens to erode Zimbabwe’s already fragile competitiveness, especially in the face of more favorable fuel pricing structures in neighboring countries.

A regional comparison reveals that Zimbabwe’s fuel tax burden is among the highest in Southern Africa.

While South Africa’s fuel taxes contribute about 28% to pump prices, and Kenya’s total around 40%, Zimbabwe’s fuel taxes now account for 35%–40% of the fuel price. Countries like Rwanda are even considering a shift to a cost-based levy system (15% of CIF value), offering a more adaptive and predictable model.

This mismatch increases the risk of cross-border fuel smuggling, especially from countries with lower levies, and undermines Zimbabwe’s standing as a competitive player in regional trade and investment.

While revenue generation is a legitimate objective, the unintended consequences of SI 50 of 2025 cannot be ignored. For businesses, especially fuel-intensive sectors like agriculture, mining, and manufacturing, higher costs will reduce productivity and output. For consumers, inflationary pressures will shrink disposable incomes, worsening the cost-of-living crisis.

The regulation also potentially reverses government efforts to ease the cost of doing business, particularly under the national competitiveness agenda. Investors tend to shy away from markets where operational expenses are unpredictable or escalating — and fuel is a major factor in these decisions.

Despite the immediate drawbacks, SI 50 of 2025 offers long-term potential if properly managed. The additional revenue could finance essential infrastructure projects, particularly in transport and energy — areas that are critical to improving logistics and industrial performance. Furthermore, high fuel costs may accelerate innovation in energy efficiency and renewable energy adoption, aligning Zimbabwe with global sustainability trends.

However, these benefits are conditional: they hinge on transparent utilization of funds, stakeholder engagement, and sustained policy coherence.

Recommendations for a Balanced Approach

To mitigate the impact of the fuel levy hike while preserving its intended benefits, the following measures are recommended:

To mitigate the negative impacts of Statutory Instrument 50 of 2025, a multi-faceted approach is necessary. First, the government should implement targeted subsidies for key sectors such as agriculture, mining, and manufacturing to help absorb the rising fuel costs and protect productivity. In addition, tax incentives and rebates should be extended to companies most affected by the levy adjustments, allowing them to maintain investment momentum and operational stability. A phased implementation of the fuel levy increase would also help ease the economic shock, giving businesses and consumers time to adapt gradually.

Furthermore, the government should engage in regional benchmarking to ensure Zimbabwe’s fuel levy structure aligns with neighboring countries. This would help prevent fuel smuggling and maintain regional competitiveness. Equally important is the transparent allocation of revenue generated from fuel levies. Funds must be visibly directed toward infrastructure development to justify the levies and foster public trust. Lastly, continuous stakeholder dialogue is essential to gather feedback, understand sector-specific challenges, and collaboratively develop sustainable and inclusive solutions.

The SI 50 of 2025 presents both a challenge and an opportunity. In the short term, it adds pressure to an already strained economy, threatening to dilute gains made under Zimbabwe’s competitiveness reform agenda. However, with the right support mechanisms and transparent reinvestment of revenue, this policy could lay the groundwork for sustainable, long-term growth. For now, the key lies in balancing the revenue imperative with the real-world economic dynamics on the ground.

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