Business escalates rice tax deadlock

ZIMBABWE’S retail and wholesale industries, under pressure from Treasury to pay a controversial tax on rice in retrospect, have approached President Emmerson Mnangagwa and his deputy Vice-President Constantino Chiwenga to direct Finance minister Mthuli Ncube to hold fire.

Confederation of Zimbabwe Retailers president Denford Mutashu told the Zimbabwe Independent this week that the tax being backdated by the Zimbabwe Revenue Authority (Zimra) to February 2017 could create a graveyard of retailers and wholesalers.

One firm has been asked to pay up to US$300 000 by Zimra, Mutashu said, noting that this was far too high for firms operating under a volatile economy.

At the end of last year, Zimra began demanding that retailers and wholesalers pay Value Added Tax (VAT) on pre-packed packs of at least 25kg backdated to February 2017, raising concerns from the retailers, which wrote to Ncube in December objecting to the move.

On February 16, 2017, the government had issued Statutory Instrument (SI) 26A of 2017, repealing SI 20 of 2017 which had revoked an existing exemption on VAT on several products.

These items included potatoes, rice, margarine, mahewu, meat and fish.

Thus the repeal meant that all these food items including pre-packed rice were back to being exempt from VAT.

However, Ncube piled pressure on retailers and wholesalers in a March 15, 2021 letter where he pressed them to pay up the VAT in retrospect, forcing Mutashu to scale up the matter to the presidency.

“We have appealed to His Excellency President Mnangagwa and had liaisons with the office of Vice-President Chiwenga on the particular matter and our hope right now is that our President will also see reason and reverse the directive that has been issued by the Honourable Minister of Finance,” Mutashu said.

“What it (Ncube’s order) will do is it will

mean the shutting down of a lot of retailers and wholesalers. I will give an example of a transaction that Zimra has already enforced on one of the players.

“They have gone in and made assessments in courts and through that assessment have demanded that they pay between ZW$30 million (about US$355 500) to ZW$40 million (US$474 000) VAT in retrospect and that’s plus or minus US$300 000. Where on earth would someone fork out such an amount?” Mutashu said.

The confederation is the latest of several business lobbies that have spoken against the VAT on rice.

In October, the Zimbabwe National Chamber of Commerce submitted a letter to Ncube cautioning him against the move as this would exert more pressures on an industry that had already been affected by a prolonged economic crisis. It also warned that consumers would be affected by price hikes.

Zimbabwean companies face problems, including diminishing markets due to job losses and high costs of doing business.

Two weeks ago, youth activist Esther Zimudzi took the matter to the High Court, suing Ncube and Zimra over the VAT. In the court papers filed by Zimudzi’s lawyer Obey Shava on March 29, 2021, Zimudzi argued that the VAT charge had triggered price hikes by between 20-25% between October 2020 and February 2021.

Zimudzi said this had hurt the ordinary consumer.

“She argues further that the complete turnaround in position which retailers, wholesalers and consumers in Zimbabwe believed to be in place, namely, that all rice was VAT exempt, would contravene the contra fiscum rule, the right to choose and carry-on trade,” reads a statement from Zimudzi’s lawyer.

“She argues that this violates the right to freedom of trade enshrined under Section 64 of the constitution as retailers of rice have been selling the same on the basis that it was VAT exempt, only for them to be retrospectively penalised, affecting business, which effect will trickle down to consumers.”

“She also wants the court to declare unconstitutional, the demand by Mthuli Ncube and Zimra to have VAT paid retrospectively by retailers and wholesalers who imported rice into the country, more than three years ago,” it states.

On December 24, 2020 responding to the question of legality of collecting VAT on rice, Zimra said: “This assertion is not valid as a detailed analysis of the laws in question indicates that VAT is chargeable.

“The SI 273 of 2003 as amended provides for rice that is exempt and what is not so listed is thus standard rated. The challenge appears from failure to track the changes with respect to specific tariff headings.

“The VAT status of rice should not be generalised but should be specific to tariff codes. As indicated above this matter has been brought to the attention of the Ministry of Finance and Economic Development not only by Zimra, but by both specific tax payers and industry representatives resulting in the Zimra position being upheld.”