Duty increase on imports ill-advised

Increased duty on finished products announced by Finance minister Patrick Chinamasa in his mid-term fiscal policy review statement yesterday will not have the intended effect of protecting local industry but will further burden the consumer, analysts have said.

Kudzai Kuwaza

The adoption of multi-currencies in 2009 saw an influx of cheap imported products as industry grapples with a myriad of challenges such as outdated equipment, unreliable and expensive electricity, lack of long term funding to sustain operations and low capacity utilisation which plunged from 57,2% in 2011 to 39,6% last year.

Chinamasa said the import of finished products such as cooking oil and dairy products was detrimental to local industry and unnecessarily increased the country’s import bill which accumulated to US$3 billion in the first six months of 2014.

“The bulk of the imports are finished products, most of which are already produced locally,” Chinamasa said. “These include cooking oil, poultry, soap, maize meal, flour, beverages, dairy produce, furniture, sugar, fresh and canned fruits and vegetables, among others. The influx of imports, thus, continues to undermine growth of the agricultural sector and recovery of the local industry.”

Chinamasa increased duty on various finished products including meat and dairy products, beverages, vegetables, soap and furniture with effect from the October 1 2014.

He also removed foodstuffs, beverages and washing preparations from the duty free facility also effective from October 1 2014.
Chinamasa also increased duty on motor vehicles to complement efforts by the local motor industry which he said “are currently operating at below 1% of installed capacity.”

“These industries have, however, either closed or are operating at very low capacity due to low demand for goods and services from local motor vehicle assembly plants,” Chinamasa said.
However, tax expert Tendai Mavima said that while the increase of duty on finished products would raise government revenues, it will not be adequate to protect local industry.

“If the purpose is to raise revenue for government then it will be successful but if they want to promote local production, they have to introduce incentives for local industry,” Mavima said.

He said Chinamasa should have put in place measures such as tax incentives and suspension of duty on the importation of vital machinery used by industry in producing local goods.

Mavima said increasing duty on finished goods would have the adverse effect of increasing the price of goods, further eroding the disposable income of consumers.

He added that the minister should have looked at other variables that make the local industry uncompetitive such as the high cost of labour and electricity. The high utility costs will make it impossible for local industry to sell their products at competitive prices, Mavima said.

“If government subsidises utility costs for local industry, it will benefit them,” he pointed out.

Economist John Robertson said Chinamasa’s move to increase duty on finished products was “ill-conceived”.

“Before you think about protecting local industry, you first have to restore local production,” Robertson said.

He said there was need to improve the supply of local raw materials on farms such as soyabeans, adding this could only be done by dealing with the consequences of the chaotic land reform.
“They are attending to the symptoms of the problem when we ruined local production through policies like the chaotic land reform programme,” Robertson said.

MDC-T shadow industry minister Tapiwa Mashakada said imposing punitive duties on imported products would only work in a normal environment where industry was operating properly.

He said increasing duty on imported products when local industry was struggling could create a black market as local producers are struggling due to the high cost structure of utilities which are uncompetitive.

The former economic development minister said Chinamasa had prescribed “textbook solutions” which he said would not work.