KEY POINTS
- Parliament criticizes Finance Minister Mthuli Ncube’s fuel transit tax policy.
- The policy is said to create more harm than benefit and fails to curb transit fraud effectively.
- The policy may violate regional trade agreements and discourage trade through Zimbabwe.
The Parliamentary Committee on Budget has voiced strong criticism of Finance Minister Mthuli Ncube’s recent decision to impose a tax on fuel in transit. The Committee argued that the disadvantages of the policy far outweigh any potential benefits, particularly in terms of its impact on ease of doing business in Zimbabwe and its failure to address the problem it seeks to resolve.
In his 2024 Mid-Term Budget Review, Ncube introduced the tax as a way to curb transit fraud. He explained that the funds would be reimbursed at the Port of Exit, aiming to deter the illegal offloading of fuel in Zimbabwe. However, the Committee’s analysis of the budget review found that the policy is unlikely to achieve its goals.
Challenges of the transit duty policy
The Committee questioned the effectiveness of the tax in curbing fraud, stating that it would do little to prevent fuel smuggling. “The payment of duty and reimbursement at the exit point will not adequately address transit fraud,” the Committee stated, adding that transporters could still offload fuel and reload with other liquids, making the policy ineffective.
According to New Zimbabwe, the Committee also expressed concern over the financial burden this policy places on businesses. Genuine transit consignments would now need to secure additional operational funds to cover the duty payments, which would later be reimbursed.
The administrative strain on the Zimbabwe Revenue Authority (ZIMRA) was another issue, with the Committee arguing that it would be unnecessarily laborious to collect and repay revenue that is not available for public spending.
Impact on business and trade relations
The Committee further highlighted the negative impact this policy could have on Zimbabwe’s business environment. It argued that the duty on fuel in transit is in direct opposition to the government’s mantra that “Zimbabwe is Open for Business.” The added costs and administrative challenges could drive economic agents to seek alternative trade routes through neighboring countries, thus harming Zimbabwe’s competitiveness.
Additionally, the Committee raised concerns that the policy violates existing regional trade agreements, particularly Articles 3 and 4 of the Southern African Development Community (SADC) Protocol on Trade. These articles call for the elimination of tariff and non-tariff barriers to trade, which the new fuel tax directly contradicts.
The Committee urged ZIMRA to strengthen its administrative processes rather than relying on what it described as a flawed policy to curb transit fraud. One recommendation was for ZIMRA to obtain a commitment from clearing agents to pay duties in cases where goods fail to reach their designated exit points. This approach, the Committee argued, would be more effective in preventing fraud without imposing unnecessary burdens on businesses.
