Fuel smugglers wreak havoc in local market

ZIMBABWE’S punitive tax regime has given room for a fuel black-market, with illegal dealers smuggling the commodity into the country while Treasury misses out on potential revenue.

By Taurai Mangudhla

Zera CEO Gloria Magombo
Zera CEO Gloria Magombo

Global oil prices have gone down since 2015, prompting countries to reduce fuel prices by as much as 50% with neigbouring states like Zambia and South Africa selling blended petrol at below US$1 per litre for a while now.

However, Zimbabwe’s service stations are selling the same product on the pump at US$1,28 per litre due to layers of taxation. This has created room for arbitrage and fuel smuggling.

Zimbabwe, according to the Zimbabwe Energy Regulatory Authority (Zera) website, charges excise duty on fuel, a road levy, carbon tax, debt redemption levy and strategic reserve levy on top of other administrative expenses, effectively making formal fuel imports expensive.

As shown by the latest Zimra figures, tax collections under the excise head slid as, among other things, excise duty on fuel went down remarkably in the first quarter of 2016 despite continued car imports and heavy use of fuel powered generators as load shedding on the Zesa national grid persists.

Although the latest Zimra report notes that the actual revenue collected across all revenue heads was below target due to the prevailing economic environment, excise duty underperformed due to a decline in fuel imports partly attributed to smuggling of the commodity.

“The performance of the revenue head can be attributed to a reduction in the volumes of fuel imports. The decline could also be partly ascribed to fuel transit fraud and smuggling as signified by a proliferation of illegal service stations during the period under review,” Zimra said, adding “the slump in the global oil prices could also explain part of the performance by the revenue head.”

According to Zimra, diesel import volumes fell from 199,97 million litres in Q1 (2015) to 190,14 million litres in Q1 (2016), while petrol volumes also fell from 122,14 million litres to 113,86 million litres over the same period.

“It is anticipated that the cargo tracking system will particularly curb fuel transit fraud,” Zimra said.

Zera CEO Gloria Magombo confirmed fuel smuggling was on the rise, although she could not illustrate the extent of the illegal activities.

“We have noted sprouting of illegal fuel dealers and we have shut down a number of them in recent months. They are selling contaminated fuel which is dangerous and it is often stolen. The question of where it is stolen is for the police to answer, but we are urging motorists to report these illegal dealers and activities because they are putting their vehicles at risk,” Magombo said in an interview this week.

Zimra said revenue from excise duty amounted to US$160,45 million during Q1 (2016), representing 89,59% of the targeted US$179,08 million and a decrease of 2,99% from the US$165,4 million collected in Q1 (2015).

The revenue collector said excise duty on fuel was the main contributor to the revenue head with a contribution of 79,35% followed by excise duty on beer and airtime which contributed 8,92% and 6,09% respectively, with the remainder of the revenue coming from excise duty on tobacco, wines and spirits, second-hand motor vehicles and electric lamps.

Zimra said net collections of US$724,89 million for the quarter under review were 84,11% of the targeted US$861,83 million, recording a decline of 9,75% compared to Q1 2015.

The bulk of the revenue for 2016 was realised from individual tax which contributed 23,1% followed closely by excise duty at 22,13%.

The decline in revenue collections was attributed to worsening liquidity situation which further depressed operations of the few companies still functional thus leading to even lower industrial capacity utilisation.

Zimra said companies continued to downsize and closures continued, giving rise to more job losses.

“Company profitability was also softened in the main. Consequently, revenue mobilisation was below target and Zimra is struggling to restrain the tax debt which rose by 30,9% from US$1,97 billion at the end of 2015 to US$2,58 billion by the end of Q1 (2016),” it said.

Zimra Chairperson Willia Bonyongwe said Zimbabwe’s economy is going through troubled waters and requires a big incentive to stimulate it sustainably.

“Efforts are being made to attract foreign capital inflows but in the meantime there is much Zimbabweans should do by themselves. Firstly, to curb all unnecessary consumption imports and concentrate on increasing productive capacity with the resources available,” she said.

“Secondly, immediately review our cost structures because we are using a very strong currency. Executive salaries and packages should be linked to productivity, the bank charges and cost of money must be reduced, the margins across the board must also be reduced.”