LIVINGSTONE MARUFU
Zimbabwe could be losing US$248m annually to illicit cigarette deals owing to a mixed taxing regime that benefits cartels at the expense of industry players, business leaders have said.
It comes after Finance and Economic Development Minister, Mthuli Ncube increased excise duty on cigarettes to 25% + US$5/1000 from 20% + US$5/1000 cigarettes saying it was a regional benchmark.
This, according to Ncube, would curb illicit flows.
In its latest report, the Zimbabwe National Chamber of Commerce (ZNCC) said the current excise duty regime on cigarettes has two components and the system has been benefiting illicit traders.
“We request that the Ministry of Finance and Economic Development remove the ad valorem rate of 25% and remain with the specific rate of US$16 per mile of cigarettes.
“The ad valorem component is subject to manipulation and is a huge cost as production increases. The estimated fiscal benefit from this proposed move is US$248m per annum based on the current production rate and the prospects of future production once it is removed.
“We also strongly urge the Ministry of Finance and Economic Development to put in place a predictable cigarette excise duty regime,” ZNCC said.
ZNCC said players within the industry view the current setting as overtaxing them, cognisant of the need for the Treasury to raise revenue from cigarette sales.
It said there was also a need for the government to provide tax relief to the sector as the wider economy recovers from the pandemic and tries to navigate the harsh operating environment as a result of the geopolitical environment.
On sealing of Production Counters – Cigarette Industry, ZNCC said: “Following the policy announcement in the 2022 Mid-term Fiscal Policy Review and Supplementary Budget, we commend the move by the government to compel cigarette producers to seal the production of counters of individual production machines.
“On top of this, we request the government to compel players within the cigarette manufacturing subsector to install CCTVs for effective monitoring and enhanced transparency.”
The Confederation of Zimbabwe Industries (CZI) also called for the removal of the current excise duty on cigarettes which is punitive to the players.
“CZI recommends that there is a need to migrate from the current mixed excise duty regime for tobacco to a specific excise duty regime, which brings certainty to investors while also maintaining revenue inflows for the government as well as eradicating illicit cigarette markets.
“The current ad valorem excise duty is prone to manipulation by cigarette companies through falsification of ex-factory prices or controlling sales transactions with third parties so that the ex-factory price is lowered to reduce the excise amount,” CZI said.
Neighbouring countries such as South Africa, Botswana and Mozambique have already migrated to specific excise regimes.
It is believed that there is a cartel that is close to the corridors of power that continues to benefit from the current tax regime in the cigarette industry.
