Zim’s fuel rebate dilemma

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  • Zimra  industry $100m in VAT refunds

LIVINGSTONE MARUFU/ PHILLIMON MHLANGA

Government has set up sectoral committees to tackle the proposed rebates of excise duty on fuel amid concerns from industry that treasury might not honour its obligations as it is  currently struggling to refund value added tax to the tune of $100 million.

Zimbabwe recently hiked its fuel prices, a development which triggered nationwide protests starting Monday. President Mnangagwa while announcing the increase said the move was necessary in light of the prevailing economic conditions. Petrol was raised to $3.31 per litre and diesel at $3.11 per litre, prices which were seen as being aligned to the black market rate on the USD.

However to prevent the wanton increase in prices and to cushion businesses from rising overheads, government proposed rebates for select registered business. According to Minister of Finance and Economic Development, Mthuli Ncube, duty on diesel is now $2.11 per litre from $0.461 per litre  while blended petrol new duty is now $2.482 per litre from $0.622 per litre, signifying a 299 percent increase in duty. The rebate will apply to registered businesses in the manufacturing, transport, mining and agriculture sectors.

To deal with the complexities, government through its key ministries of Industry and Commerce, Labour and Social Services, Energy and Power Development and Finance and industry representatives, will set up sub-committees to formulate a framework around the rebate structure.

This comes as there is growing mistrust over government’s ability to refund VAT with Zimbabwe Revenue Authority commissioner general Faith Mazani saying the tax collector is still behind on VAT refunds, with arrears stretching back over a year. In such a scenario, business would rather increase prices than wait for a +180-day period to get a refund.

Mazani told Business Times that Zimra owes $100 million in VAT refunds.

Further to the inability to refund VAT, industry is also complaining that there is need to revise the rebate structure to make it broader by including other sectors such as construction, tourism and education.

And a more general concern is that it creates new arbitrage opportunities as there is no tracking mechanism in place to audit how much fuel has been by a business and government could find itself paying for more than what it is initially supposed to pay.

Local business leaders yesterday met the Minister of Industry and Commerce, Nqobizita Mangaliso Ndlovu, Public Service, Labour and Social Welfare Minister Sekai Nzenza and senior officials from the Ministry of Finance and Economic Development, Energy to discuss modalities on how the proposed rebates of excise duty on fuel consumed by businesses would be effected in the absence of a sustainable financing framework.

Ndlovu told the meeting that government has started the formulation of the proposed rebate to the business sector with some companies expected to start benefitting in the next few weeks.

“We are in the process of setting up committees in the aforementioned sectors to effect the proposed rebates on fuel consumed by businesses in the shortest time possible (that’s the short term plan). But going forward we want to come up with a monthly framework that will pay business for the fuel they would have used for that period of time. Let’s say payments will be done on the 15th of every month.” said the minister.

Although the normal process for tax refunds state that it should take up to 60 days for a refund to be paid, several local companies have been thrown  into financial turmoil due to delays by ZIMRA in processing tax refunds, a situation which is killing business as it is creating cash-flow problems for firms.

Company executives said they were facing delays of between six months and 12 months, a situation which has negatively impacted on cash flows. Some indicated that whenever they lodge refunds papers, the tax authority, subjects them to several audits from different departments from ZIMRA, a situation which has delayed the refund process.

They indicated that even in instances where the taxpayers repeatedly supplied the documents requested by ZIMRA to complete verification, refunds were still taking longer to be processed. The worsening situation has caused enormous problems for businesses, especially in this economic environment.

“We feel that the refund only adds to the bureaucracy,” industry representatives told the government officials.

Admitting that there was a backlog, Mazani told this publication that: “We have reduced  the figure from about $160 million in the last few months  to between $95 million and $100 million.”

Economist, Brains Muchemwa, said:  When you increase the price of fuel and then give a rebate, it means the average person on the street, the poorest, will stomach the full cost
of the increase.”

No justification for price increases: Treasury

Finance and Economic Development permanent secretary George Guvamatanga said government had now revived a 1990s costing framework which provides a monetary reflection of the utilisation of business resources. According to that framework, Guvamatanga said that fuel only constitutes between 10 to 15 percent of the total business operational costs.

“Therefore with the current fuel price increases most businesses were supposed to increase their goods by not more than 3,5 percent.

“Also for the transport sector, whose fuel usage constitutes 40 percent of their cost, fares should have increased the fares by less than 10 percent. The sharp increase to $5 per passenger is not justified and pure profiteering as it doesn’t make sense to get an average of $60 per trip when one has used a litre or 1,5 litres of fuel per trip.

“This is preposterous; this is daylight robbery to our citizens. We will have dialogue soon with the transport operators to urge them to charge reasonable fares to commuters,” said Guvamatanga.

Zimbabwe has been facing a fuel crisis attributed to a lack of foreign currency in the country while the skewed pricing regime following the widening of the disparity between the bond note and the US$ was said to be disadvantaging government.

Fuel supplies set to improve: Magombo

Energy and Power Development permanent secretary Engineer Gloria Magombo said the country has imported 49 million litres of fuel which landed on Sunday.

“Close to 50 million litres of fuel landed at Msasa on Sunday with deliveries expected to be done from Monday going forward, but with disturbances of the past three days transportation was not possible. However, as we speak various fuel dealers have started transportation to various service stations.

“Going forward in a few weeks’ time we have over 100 million litres awaiting us and we hope that this will see us through the crisis and months to come.

“Fuel audits have already begun with new entry barriers expected to streamline fuel usage in the country,” said Magombo.