A standoff — which disrupted the start of the tobacco marketing season last week — has erupted between the Finance Ministry and the Zimbabwe Revenue Authority (Zimra) over the operationalisation of the 2% intermediate money transfer tax waiver on all transactions at the tobacco auction floors.
Nyasha Chingono/ Lisa Tazviinga
The stalemate comes after Zimra rejected government orders to regularise a waiver through a directive on tobacco farmers, merchants and auction floor operators’ transactions effected by the Finance Ministry on March 18, insisting on the creation of a Statutory Instrument to give legal effect the exemption.
This follows a successful lobby by stakeholders for government to scrap the 2% tax on the sale of the golden leaf. The waiver includes transfer of funds for the purchase of tobacco from buyers at the auction floors and transfer of funds by contracting companies. It also exempts charges on transfer of funds by auction floors to farmers for deliveries of tobacco.
Businessdigest understands that Zimra has also ignored a letter written by Finance Ministry permanent secretary, George Guvamatanga on March 20 informing the tax collector’s Commissioner-General Faith Mazani of the ministry’s waiver through a directive, not a statutory instrument.
“I refer to my letter of 20 March, wherein I advised that Treasury has concurred to exempt the following transactions from Intermediated Money Transfer Tax with effect from 18 March 2019:
l Transfer of funds for the purchase of tobacco from tobacco companies to auction floors; and
l Transfer of funds by contracting companies and auction floors to farmers for deliveries of tobacco.
“Furthermore, Treasury has approved the VAT zero rating of export of unmanufactured tobacco as is the case with all exports. Zimra should therefore, urgently draft the Statutory Instrument to give effect to the above decisions which will be implemented in retrospect,” Guvamatanga’s letter, copied to Reserve Bank of Zimbabwe (RBZ) governor John Mangudya and Bankers Association of Zimbabwe (Baz) president Charity Jinya (FBC Bank managing director Webster Rusere is in fact current Baz president), says.
“In the interim, no deductions on the above transactions should be effected, pending the promulgation of the necessary legislation.”
The standoff resulted in a slow and erratic start to the 2019 tobacco selling season which was disrupted at its opening last week on Wednesday. Farmers have also been at loggerheads with the Tobacco Industry Marketing Board (TIMB) that recently hiked weighing and auction floor charges, further eroding farmers’ earnings.
The fee was this week raised from US$4,50 last season to US$7,70 per bale this season, much to the chagrin of farmers who felt that their earnings were being squeezed.
Apart from weighing and auction fees, other deductions incurred by farmers include tobacco levy (0,75%), TIMB stop order levies (0,8%) and the Ministry of Agriculture levy (USD$0,875c per kg )
Only four out of 32 auction floors opened last week as buyers protested over the 2% tax, but this week the situation improved after the exemption was clarified. However, the waiver has not been legally effected, hence a standoff between Treasury and Zimra over the need for a statutory instrument stakeholders are demanding. There was also protest over the demand for payment of tobacco proceeds in foreign currency, an issue now resolved.
Boka managing director Chipo Nyakudya this week blamed the confusion at the auction floors on lack of information ahead of the tobacco selling season.
“Our call is to the decision-makers to make sure that farmers are educated in time; this will help us to preserve our relationships with farmers who, without the necessary education will end up blaming the floor for all the things they don’t understand. The 50/50 payment plan is not being clearly communicated; farmers have come expecting to receive their foreign currency allocation in hard cash,” Nyakudya said.
Small-scale growers are entitled to withdraw US$ cash equivalent to US$0,10 per kg of tobacco sold, up to a maximum US$50, once their local FCA has been credited with the foreign currency, according to the RBZ.
The golden leaf is the country’s second largest foreign currency-earning commodity after gold, with exports generating up to US$1 billion annually. About US$800 million is already in the local market for buying tobacco.