Mthuli went through with it: It’s a mess

INDUSTRY is fretting over new fiscal measures introduced by the Government, saying the promulgation of the new tax laws has repercussions which include, but not limited to rampant price increases and massive disruption of trade channels.

This week industry representatives have been having marathon meetings with Finance, Economic Development and Investment Promotion Ministry officials to find amicable solutions to what some market watchers have described as a “mess”.

The Government last week gazetted Finance (No. 2) Act 13 of 2023 which promulgates revenue measures announced by Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube in the 2024 National Budget, later approved by Parliament and Senate.

The gazetted tax policies have since been perceived as burdensome or unfair, leading to industry and public outcry. Industry see the proposed measures as a deterrent to intended goals of the Industrial Policy, envisioned capacity utilisation growth and competitiveness.

During this week’s engagements, industry raised many concerns including the impact of Value Added Tax (VAT) on cost and pricing upon movement from VAT zero rated, as well as the 10 percent trading margin.

They indicated that it was absurd that it would require so much licensing for businesses to trade with wholesalers including the route to market issues.

They are of the view that manufacturers and wholesalers must be allowed to trade with retailers or any other business that is tax-compliant.

Albeit a marathon of meetings to fine-tune the tax measures, Zimra has since released a statement promulgating the gazetted Finance Act, 2023.

It says the instituted measures are meant to protect value chain integrity and transparency and to also counter unfair competition by informal traders.

Zimra outlined that wholesalers who are not VAT registered or do not have a current tax clearance certificate are no longer allowed to purchase goods straight from manufacturers.

It also stipulated the need for retailers to have a retail licence, be registered for VAT, and have a current tax Clearance Certificate if they are to buy from wholesalers.

Any other person, which includes retailers not stated above, informal traders, and individuals, can only buy from wholesalers up to a maximum of goods worth US$1 000 in a period of not less than 30 days.

But to do so, they have to produce receipts for goods purchased from the same wholesaler that are dated not earlier than 30 days from the date of the last purchase.

Any person who purchases for the first time from that wholesaler in any calendar year, or if the person concerned cannot produce a receipt as proof of a previous purchase from the same wholesaler, can only purchase goods not exceeding US$20, according to a clarification by Zimra.

Businesses have already started issuing notices to customers concerning the 15 percent VAT on products.
As of yesterday, several retail outlets had started showing intent to increase their prices in line with the gazetting of Statutory Instrument 248 of 2023.

“All of our meat products now include a 15 percent VAT component with effect from 1 January 2024,” said Butcher Box a meet retail outlet.

Another meat products retail outlet Texas Meats said, “ . . . we have been forced to increase beef, chicken, pork, and fish prices in line with the introduction of 15 percent VAT by the Ministry of Finance on the aforementioned product categories.”

The instituted measures also seek the manufacturer to first supply the wholesaler before the product reaches the retail outlets.

Beverages manufacturer Delta Corporation said, “The regulations prescribe that we collect a surcharge of 30 percent above the standard price for remittance to Zimra for any trader that cannot provide the listed documents. This applies to any sales exceeding US$1 000 per transaction, undertaken within a thirty (30) day period.

“We urge all our commercial partners to regularise their compliance documentation with immediate effect to forestall any disruptions in our trading relationships.”

According to commentators the Government risks accelerating the rate of informalisation due to the latest fiscal policies.

“We are concerned by imminent price increases that this budget is going to introduce. We are also concerned about the disruption of the trade channel,” said one of the commentators on condition of anonymity.

“As the law stands right now, Unilever cannot load a truck and give products to shop owners, because some owners in some rural areas are not VAT compliant, in short those people cannot receive products.

The market has changed and the structure of our trade channels has been evolving over the years and only the manufacturer has the responsibility to follow retailers as wholesalers are fixed.”

There is now a risk that formal manufacturing will lose market share to imported goods being sold by the informal trade sector.

Market share for smuggled goods has been recorded at around 30 percent in some manufacturing sub sectors.

“What is going to happen when we stop trading with the informal sector is that trade in the informal sector will not stop, but they are going to import their merchandise.

“There are fears within industry that local manufacturing will lose market share to smuggled goods and duty-free goods from the SADC region and with this a corresponding loss in capacity utilisation, profitability, corporate tax contribution and maybe even jobs and PAYE.

“It is a mess, but the sad thing is that of all products marketed in this country, 20 percent of that price is tax to the Government, so if you reduce or stop trade it means you are also willing to give up that revenue. You cannot begin to dictate the route to the market as a business, those things are not legislated, the market should determine and shape those things,” said the industry expert.
However, some commentators think that pricing adjustments by companies were just a reaction to the policy pronouncements.

Economist and Zimbabwe National Chamber of Commerce (ZNCC) chief executive officer Takunda Mugaga highlighted that the policy has good intentions, but might also have a downside.

He said they are somehow meant to curb the growing informal sector that, the formal retailers and government are grappling with.

Mugaga, however, said “these measures must be adjusted to avoid loss of confidence in the policy by the intended beneficiary”.

He added that authorities’ position to dictate who a manufacturer can sell to might be ill-timed and might create artificial shortages as manufacturers protest.

“There are a few wholesalers in this country so by putting this policy in place, you will be creating fictitious wholesalers, where someone will just come carrying a licence, will you be able to verify if it is a true establishment?,” Mugaga questioned.

He also noted that the policy intervention was not catering to perishable products like bread and vegetables, which were not possible to sell in wholesales.

“As it stands the law is saying meat products from Irvine’s, should first go to a wholesaler, and then retailers get it from N Richards, the same goes for bread and other perishable products, and this just affects the whole retail chain.”

CZI chief executive officer Sekai Kuvarika said her organisation had also met with the Ministry of Industry and Commerce to discuss similar issues.

She said key issues that were part of CZI’s submissions to the ministry include the movement from VAT zero-rated to VAT exempt, the disruption to the route to market, the sugar tax issue, as well as the 10 percent cap on trading exchange rates.

According to the CZI presentation seen by this publication, the new tax measures will have different impacts in the various value chains in terms of magnitude, “but the general impact is that the VAT that is no longer claimable will have to be passed on to consumers with resultant price increases”.

The industry lobby group is of the view that “there is a greater likelihood that the unintended consequences will be achieved than there is a likelihood of achieving the intended consequences”.

“Trade in the informal sector will not stop; they will import or smuggle goods,” reads part of CZI’s presentation.

“Formal manufacturing will lose market share to imported goods being sold by the informal trade sector. Poverty will worsen if micro-traders are restricted from accessing goods for subsistence-level trade.
CZI proposed that the value chain be allowed to “continue trading as is current”.

Industry proposed a 12-month moratorium on restricting trade with the informal sector while a working group on promoting formalisation through segmentation of costs of compliance and incentives for formalisation is being put in place.

They also advocated for an awareness campaign on formalisation and its benefits to small as well as consumer education on safe consumer products and the risks associated with informal sourcing.

As a transitional mechanism, industry pleaded with authorities to allow, formal businesses to charge a presumptive VAT on all goods sold to the informal sector after invoice values in excess of a certain amount.

On the 10 percent trading margin above the official exchange rate, business proposed that formal businesses be allowed to use an exchange rate that is not more than 20 percent below the market rates to continue trading in USD and to ensure that USD revenue does not shift to the informal sector.-businessweekly