Fiscalisation of fuel sales to curb tax evasion

In a bid to tighten its grip on tax evasion and improve transaction transparency, Treasury has mandated the fiscalisation of domestic fuel sales.

The new policy, which comes into effect this month, requires all fuel dealers to electronically report their transactions in real-time to the Zimbabwe Revenue Authority (ZIMRA).

This move is part of the Government’s broader strategy to enhance revenue collection and ensure a level playing field in the fuel industry.

Finance, Economic Development and Investment Promotion Minister, Professor Mthuli Ncube, in his mid-term budget review, emphasised the importance of fiscalisation in enhancing the country’s fiscal stability.

“Fiscalisation is a critical step in our efforts to modernise tax administration and improve compliance. By ensuring that all transactions are transparently recorded, we can create a fairer business environment and secure much-needed revenue for public services,” Mthuli stated.

Fiscalisation refers to the use of electronic systems to record sales transactions in a manner that is tamper-proof and directly linked to tax authorities. This system ensures that all sales are transparently reported, reducing the likelihood of tax evasion and fraud.

The method is commonly used in various sectors globally to improve tax compliance and streamline the tax collection process.

“Mr Speaker Sir, the fiscalisation programme is currently limited to Value Added Tax, through the VAT Fiscalised Recording of Taxable Transactions Regulations, in order to safeguard the revenue base from potential under declaration of sales.

“There is an opportunity for operators to under-declare fuel imports, as well as abuse the Removal in Transit (RIT) Facility. Notwithstanding the growth in establishment of fuel stations, the contribution of the sector to the fiscus remains considerably low,” the Mthuli said.

The introduction of fiscalisation in Zimbabwe’s fuel industry has significant implications for fuel dealers. According to a mid-term budget analysis by FBC Securities: “The move will likely reduce the likelihood of tax evasion and improve transparency in transactions. This might help in levelling the playing field by ensuring all fuel dealers adhere to similar reporting standards.”

However, compliance with the new requirements will not come without costs as fuel dealers may need to invest in new technology or systems to comply with fiscalisation requirements.

“This includes hardware for electronic reporting, software for managing transactions and potentially training staff,” noted FBC Securities. These initial investments may be substantial, particularly for smaller fuel retailers who operate on thinner margins.

Despite the upfront costs, the long-term benefits of fiscalisation could be considerable as real-time reporting can streamline accounting processes and reduce the time spent on manual recordkeeping. Over time, this can lead to operational efficiencies, enabling businesses to focus more on their core activities rather than on administrative tasks.

The Government has been grappling with issues of tax evasion and revenue leakage for years. The fuel sector, in particular, has been a hotspot for such activities, given the high volumes of cash transactions and the relatively lax regulatory environment. Through mandating fiscalisation, the Government aims to curb these malpractices and boost its tax revenues.

Dr Steven Jambi, a tax expert, believes the introduction of fiscalisation in the fuel sector as a significant step forward in combating tax evasion, especially in a high-cash environment like Zimbabwe’s.

“The move to mandate real-time electronic reporting of fuel sales transactions is crucial for enhancing transparency and accountability within the industry. By linking these transactions directly to ZIMRA, the government can better monitor sales data and ensure that all taxes due are properly declared and collected,” he said.

This initiative not only helps in safeguarding the revenue base but also promotes a level playing field among fuel dealers.

When all businesses are held to the same reporting standards, it minimizes the opportunities for some players to undercut others through tax evasion.

“This is particularly important in sectors like fuel, where large volumes of cash transactions can easily be manipulated to underreport income. While the initial costs of implementing fiscalisation might be a concern, especially for smaller dealers, the long-term benefits of increased compliance and streamlined operations outweigh these costs,” Dr Jambi added.

The response from the fuel industry has been mixed. While some larger players have welcomed the move as a necessary step towards greater transparency and accountability, smaller operators have expressed concerns about the financial burden of compliance.

“For large companies, the costs of fiscalisation are manageable and can be absorbed into their operations. However, for small and medium-sized enterprises, the financial and logistical challenges are much greater,” commented a player in the industry.

The success of the mandatory fiscalisation of domestic fuel sales will depend on several factors, including the effectiveness of the technology used, the level of compliance among fuel dealers, and the support provided by the Government. If implemented effectively, fiscalisation could lead to a more transparent and efficient fuel industry, ultimately benefiting the broader economy.

Despite the initial costs and challenges, the long-term benefits of streamlined accounting processes and operational efficiencies hold promise. As the country strives to stabilize its economy, such measures are essential in ensuring a fair and equitable business environment.-ebsuiensweekly