Sugar tax to drain sweetness out of businesses, CZI warns
ZIMBABWE’S poor business environment could push businesses to relocate to friendlier economies, business leaders warned in a confidential paper to government recently.
The document, which was exclusively obtained by the Zimbabwe Independent, aid bare a string of dark spots in Finance minister Mthuli Ncube’s 2024 budget, with the beverages sector hardest hit.
Business leaders took special excerption to a sugar levy which they estimate would drain US$1,6 billion from beverage producers which would force firms to switch to less costly alternatives.
This would, in turn, hit revenues with dire implications on tax revenue to government and employment levels, CZI warned.
Ncube summersaulted two weeks ago and revised the sugar levy to US$0,001 per gramme, from US$0,02 for every gramme of sugar contained in beverages.
Still, at about US$20 000 per metric tonne, the levy far outstrips regional comparative were the same regime is in force, such as US$1 500 per metric tonne in Botswana and US$1 135 per metric tonne in South Africa, according to CZI.
“If the sugar tax levy is implemented at the proposed fee, Zimbabwe cannot export, and the domestic brands will be produced outside the country then imported back to Zimbabwe,” the Confederation of Zimbabwe Industries (CZI) said in its report, which is titled ‘CZI 2024 National Budget Response Paper’.
A few Zimbabwean firms already produce goods under this model, but analysts fear its implementation at a bigger scale may hold back growth.
The levy was due to pile fresh pressures on the viability of an industry that has already been struggling to match stiffer competition from regional producers.
The price of two litres of Mazoe cordial juice, one of Zimbabwe’s most popular beverages, was due to shoot US$21 if Ncube had not relented two weeks ago, from US$2,80.
But one of the biggest price movements would have been registered in the 300ml coke bottle, which was expected to rocket to US$1,10, from US$0,25 while Pfuko drinkers were set to pay about US$3,40 from US$ 0,50.
“Manufacturing is mainly characterised by movement of raw materials and produce through delivery trucks. Toll fees per delivery truck have just gone up by 100%. This is directly feeding on raw materials costs, which will also affect competitiveness with firms from other regions. Vehicle registration costs in South Africa are only about US$17,282, compared to US$500 for the proposed in Zimbabwe. Toll fees for heavy vehicles, the category which transports raw materials and finished products for industry, is about US$12 in South Africa and US$6,18 in Zambia for prime roads, while the proposed is US$15 for Zimbabwe,” CZI warned.
“In addition, fuel has been increased through the adjustment of the Strategic Reserve Levy upwards by US$0,03 per litre for diesel and US$0,05 per litre. Given that this is happening at a time when industry is struggling to remain competitive in the global supply and value chains, this will make it harder for Zimbabwe manufacturers to be competitive against import competition,” the report added.
Two week ago, the Independent reported that the sugar levy would cost drinks manufacturers US$1,6 billion in fresh costs.
Warning of a potential ‘wipe out’ of a sector that is already battling diminishing demand, CZI said the tax was too high.
The sugar levy, one of a raft of taxes and other statutory obligations introduced by Finance, Economic Development and Investment Promotion Minister Mthuli Ncube in the 2024 national budget, had already been blamed for waves of recent beverage price hikes.
“This proposed levy is extremely high, and will see beverages being not affordable to consumers,” CZI said it its paper.
“The beverages sector in Zimbabwe uses about 7 000 metric tonnes of sugar per month. The minister proposed to introduce a levy of US$0,02 per gramme of sugar contained in beverages, excluding water. This proposed levy is extremely high, and will see beverages being not affordable to consumers. To put things into context, the beverages sector in Zimbabwe uses about 7 000 metric tonnes of sugar per month. When charging the 2 cents per gramme tax, it implies that a kg of sugar pays a tax of US$2, and a metric tonne of sugar will pay a tax of US$20 000, at a time when a metric tonne of sugar only cost US$900. This means that for the 7 000 metric tonnes of sugar consumed per month by the beverage sector, they have to pay a monthly tax of approximately US$140 million amounting to US$1,6 billion per annum,” the report noted.
It said the impact of the levy would be felt from businesses to consumers, while opening up the market to cheaper imports.
“Consumers will not be able to afford the products and the beverage sector will be wiped out by competition and fail to make any sales. To paint a clear picture the introduction of the 2 cents per gramme levy will increase the cost of final beverage products by an average factor of six times factoring VAT (value added tax) and retail margins,” the report noted.