Is Zim shooting itself in the foot?

26 Sep 2014 - by Adele Mackenzie

The Zimbabwe government’s
introduction of major
tax and import duties on
finished goods moving into
the country – ostensibly as
a measure to protect local
industry and increase revenue
– has been widely criticised by
media and industry leaders as
“ill-advised, short-sighted and
“dishonest”. It has already
resulted in one brand pulling
its exported product out of the
country and economists say
the move may result in lower
revenue for the country.
“We were forced to take the
decision to stop our exports –
MAQ washing powder – into
Zimbabwe with immediate
effect when the government
introduced 40% surtax on
finished cleaning products.
It just makes our product
too expensive and we cannot
compete with the well-known
large corporate that sends
bulk washing powder into
the country from Kenya and
repackages it in the country,”
said Bliss Brands export
manager Rishi Saxena.
He told FTW that the
company used to export
an average 300 tonnes of
washing powder per month to
Zimbabwe. This is therefore
a “major loss in revenue” for
the small brand company.
“Furthermore our sole
distribution partners in the
country, who invested in more
trucks and warehouses to
be able to service our needs
in the country, have been
badly hit.” The brand has had
an established presence in
Zimbabwe for over five years.
Saxena said that there were
no other manufacturers of
washing powder in Zimbabwe
and believes the country
does not have the skills,
infrastructure or capacity
to produce it. “What is more
likely to happen, rather than
the stated goal of creating
jobs and stimulating local
production, is that people
will smuggle goods into the
country,” he said, adding that
the government would lose
out on revenue altogether.
Managing director of
Tax Management Services
in Zimbabwe, Thendai
Mavhima, noted that while
the increased duties on
finished products might boost
revenue, it was not enough to
protect local industry. “To do
that, the government needs
to introduce measures
such as tax incentives for
local producers as well as
suspending taxes and duties
on vital machinery needed
by local industry to produce
the goods.
Local manufacturers are
not equipped to produce
the required quantities of
goods in Zimbabwe, said
economist John Robertson
of Robertson Economic
Information Services.
“Many of the producers
have either pulled out
of the country or have
considerably down-sized
their operations, so only
about 20-30% of finished
goods can be manufactured
here.”
He pointed out that it
was costly to produce in
Zimbabwe as the average
wages and water and
electricity costs were
high while productivity
was low as the supply
of basic utilities such as
electricity and water was
often down. “Before you
consider protecting local
industry, you first have to
restore local production,”
said Robertson. Mavhima
added that the Zimbabwean
government should consider
subsidising utilities for local
industry and that it needed
to ensure an uninterrupted
power supply to make local
production viable.
Robertson commented
that the Zimbabwean
government was “dishonest”
in its argument that the
taxes and duties were raised
to protect local industry.
“They basically want to
increase revenue and they
know that local production
isn’t viable. Therefore, the
goods will still need to be
imported and revenue will
be increased through higher
duties.”
However, this tactic is illconceived,
said Robertson,
as buying power will be
very limited. “If people
have less money to spend
on goods, it basically forces
them to spend only on basic
goods that do not carry
the 15% value-added tax
(VAT), which cuts into the
government’s tax collection
anyway,” he noted.
Responding to a question
around a free trade zone
within the Southern
African Development
Community (SADC),
Robertson said that the
Zimbabwean government
had managed to achieve
the higher import duties on
a technicality, calling the
new duties a “surtax” rather
than an “import duty”,
which has strained relations
with many of the country’s
regional trading partners.