Fuel levy hike sparks fresh inflationary fears

CLOUDINE MATOLA

Zimbabwe is facing the prospect of a fresh inflationary wave after Treasury approved a sharp increase in fuel levies, a move expected to drive up pump prices and cascade through the economy, raising costs for businesses and households alike.

The increase in the Strategic Reserve Levy (SRL), which took effect on June 2, comes as global oil prices climb amid heightened geopolitical tensions, amplifying pressure on an economy where fuel costs already rank among the highest in the region.

Documents seen by Business Times show that Treasury has significantly increased the levy on both diesel and petrol.

The Strategic Reserve Levy on diesel has been raised to US$0.12 per litre from US$0.05 per litre, representing a 140% increase. The levy on petrol has been increased to US$0.523 per litre from US$0.413 per litre.

On Wednesday, diesel was retailing at US$2.09 per litre while petrol was selling at US$2.08 per litre.

Economists warned that the measure is likely to reverberate across virtually every sector of the economy, given fuel’s central role in transportation, production, agriculture, mining and distribution.

In a directive seen by Business Times, Secretary for the Ministry of Finance, Economic Development and Investment Promotion George Guvamatanga instructed the Zimbabwe Revenue Authority (ZIMRA) to immediately implement the revised levy structure.

“Treasury has approved the review of the Strategic Reserve Levy (SRL) on fuel in line with the approved retail prices,” Guvamatanga said.

“Your office is kindly requested to urgently facilitate drafting of the necessary Statutory Instrument to give effect to the above measure, which takes effect from 02 June 2026. The Zimbabwe Revenue Authority is also authorised to implement the above, pending publication of the legal instrument.”

The levy increase comes at a particularly sensitive time for Zimbabwe’s economy. International crude oil prices have been trending upwards amid escalating geopolitical tensions, increasing the likelihood that domestic fuel prices could face a double squeeze from both external market dynamics and higher domestic taxation.

Economists said transport operators, logistics firms and freight companies are likely to be among the first to feel the impact as fuel constitutes one of their largest operating costs.

Any increase in transport costs is expected to filter rapidly through supply chains, pushing up the cost of moving raw materials and finished products across the country.

Manufacturers, retailers, mining companies and agricultural producers are also likely to face higher operating expenses, adding pressure to already constrained profit margins.

For farmers, the increase could prove particularly costly as diesel remains critical for mechanised farming, irrigation systems and the transportation of agricultural produce.

Economist Vince Muswere said the increase could trigger widespread price adjustments across the economy.

“Any increase in fuel prices leads to a knock-on effect since fuel is at the centre of all economic activity,” Muswere told Business Times.

“Businesses pass on the fuel price increase to customers in every economic sector. Consumers are generally facing an increasing cost of living and any fuel price increase is unwelcome.”

Another economist Eddie Cross questioned the rationale behind the move.

“I cannot see any justification for this measure. We do not hold strategic stocks of fuel. These are taxes in a real sense and in present circumstances unjustified,” he said.

Yet another economist, Enock Rukarwa, argued that Zimbabwe’s fuel pricing structure has become increasingly uncompetitive relative to regional peers because of the weight of taxes, levies and margins embedded in pump prices.

“When you look at the cost build-up on fuel, taxes and levies remain relatively elevated compared to our regional peers,” Rukarwa said.

“At current levels, government should review taxes and levies downwards. We cannot have a situation where about 40% of the fuel price consists of taxes and levies while another significant portion is made up of margins accruing to various players along the value chain.”

He said authorities should undertake a comprehensive review of the tax structure and streamline inefficiencies along the fuel supply chain to lower costs.

The implications of the levy increase extend well beyond corporate balance sheets.

For households, higher fuel costs typically translate into more expensive food, transport, clothing and other essential goods as businesses seek to recover rising operating expenses through higher prices.

The result is often a direct squeeze on disposable incomes and a deterioration in purchasing power.

Economists note that fuel price increases have historically acted as a powerful inflationary trigger because they affect virtually every stage of economic activity.

Higher transportation and logistics costs increase the cost of production and distribution, forcing businesses to adjust prices upwards to protect margins. As inflation accelerates, consumers devote a larger share of their incomes to basic necessities, reducing discretionary spending and weakening domestic demand.

The development presents policymakers with a difficult balancing act.

While Treasury may be seeking to strengthen strategic fuel reserves and boost fiscal revenues, economists warn that higher fuel taxes risk reigniting inflationary pressures at a time when businesses and households remain highly sensitive to rising costs.

With fuel serving as a critical input across virtually every sector of the economy, the latest levy increase is likely to have consequences far beyond the country’s service stations, potentially triggering a new round of price increases that could reverberate throughout Zimbabwe’s economy in the months ahead.