Businesses profiteer from VAT withdrawal

Zimbabwean consumers are still smarting from a costly blunder, or ill-thought out decision by the Government recently to implement Statutory Instrument 20 of 2017, which imposed a 15 percent VAT on basic goods. Finance and Economic Development Minister Patrick Chinamasa told Parliament last week the decision to reverse SI20 was made to allow for wider consultations, exactly where the process should have begun.

The tax was proposed in the 2017 National Budget to take effect at the beginning of January, but went largely without debate because of focus on the new bond notes and the pressures of the festive season. The consumer goods hit by the new tax included rice, margarine, cereals, potatoes, meat and meat products.

Minister Chinamasa explained the new VAT was meant to widen the tax net as part of efforts to increase revenue generation for Treasury. The decision was also meant to harmonise the country’s tax regime with the Sadc Protocol on Finance and Investment.

The minister was forced to reverse implementation of the VAT following a public outcry. Typically Zimbabwean, the moment the Government announced the 15 percent VAT, businesses, suppliers and retailers increased prices of their goods, some by margins as high as 40 percent. This blow to the consumers came overnight when suddenly everything went beyond reach.

We will recall that these are people still trying to recover from the depredations of a festive season when expectations of the children can push the family budget over the cliff.

Invariably, such profligacy is followed by the reality of school uniforms and school fees, come January. At such a time, people expect a tax rebate than an increase. Government did the very opposite, which was quickly reversed.

While the decision to reverse the VAT is commendable, unfortunately the damage had already been done. Businesses, as we have already indicated, had hiked the prices of the affected basic consumer goods and others not included. People were quickly ripped off.

Worse still, our businesses are never as quick to respond to a policy reversal which hits their bottom line. We have seen this with fuel increases on the global stage. Local suppliers are very sensitive to prices increases. However, when there is a fall, even from as high as $120 per barrel to a low of $50, they will find an excuse to maintain retail prices at $1,30 per litre. All of a sudden those who only the previous night didn’t have fuel will claim to be selling old stock bought at the higher price.

Cursory inquiries in retail shops show that consumers are still buying goods at prices which factor in the VAT which the Government has reversed.

The Confederation of Zimbabwe Retailers confirmed as much, saying they should have been consulted when the decision to reverse the VAT was made. They would then talk to the members.

But our gripe is really with the Finance Min- istry. The consultations which Minister Chinamasa says need to be carried out now should have been done before effecting Statutory Instrument 20 of 2017. He should not expect to get a high rating for listening to the plight of ordinary consumers. Such policy somersaults create confusion and are costly to consumers.

Economic conditions are tough for everyone, regardless of the causes. People are still grappling with a shortage of the US dollar and steadily getting accustomed to the new bond notes, which are coming in drips and drabs as per strategy by the Reserve Bank of Zimbabwe. People are, therefore, not in a mood for shock therapy.

It is, therefore, advisable for Government to be sensitive to the plight of consumers by avoiding such cruel shocks on basic goods, regardless whether the VAT was mentioned in the 2017 National Budget. This is especially important when businesses respond to such taxes in what appears to be inspired by bad faith.

There is no rational way to justify an overnight increase in the price of basic commodities by up to 40 percent short of naked opportunism and profiteering.

Government should not be the one seen to be creating room for such behaviour.