Govt policy inconsistencies stifling business confidence

BY TAURAI MANGUDHLA

A protracted war between government and industry over the former’s directive to collect value-added tax (VAT) on non-bulk rice in retrospect from 2017 has yet again exposed the policy inconsistency that has become the hallmark of President Emmerson Mnangagwa’s government.

Business had argued that paying the taxes would be tantamount to suicide for some of the players who owed millions and could not survive.

Last week, the government announced the directive was reversed, in yet another show of policy inconsistency.

At the time of the announcement, some businesses had already partially complied while others resisted. It remains to be seen how those who have paid will be treated.

Economist Rutendo Masawi said the decision to pile more taxes on rice was detrimental to Zimbabwe’s food security situation as rice had become very expensive.

“Rice is the only suitable alternative to staple maize meal for consumers and so the industry was simply passing on the costs of the additional taxes to the consumers most of whom are already struggling to put food on the table. Policy makers have done the right thing by exempting rice from VAT so that at least it remains relatively affordable to the general public,” Masawi said.

She said confusion around the rice VAT is testimony to policy inconsistencies by the government.

“This back and forth movement confirmed the government’s lack of clear and consistent policies, and it would affect millions of low-income families. In 2004, VAT was charged on rice at 15%, in 2008 it was zero rated or rather exempted, in 2017 VAT was restored at 15 % for two weeks from February 1 to 15.

“In the same year, rice was exempted from VAT again by the then Finance minister Patrick Chinamasa. Recently, bulk rice was exempted, but small packs attract VAT at 14,5 % and now all rice is exempted. Such inconsistencies will discourage investments and the burden will be put on consumers especially the low income families who will suffer,” Masawi said.

Economist Chenayimoyo Mutambasere also said the government’s position around VAT on rice was in itself confusing and a sign of policy inconsistencies that scare away investors.

“A fiscus policy cannot be run on sporadic and knee-jerk reactions. Introduction of statutory instruments that are ambiguous dampens investor confidence in the market at a time of an economic downturn,” Mutambasere said, adding that the government’s reliance on taxation reduces disposable income when the contrary should be happening.

“The minister must reconsider his contradictory policies once and for all and give a clear direction,” Mutambasere said.

Soon after the directive, under Statutory Instrument (SI) 125 of 2021, Confederation of Zimbabwe Retailers (CZR) wrote that the confirmation of the VAT position for rice shows that the government is committed to establishing a private sector-led economy.

The confirmation that pre-packaged rice is VAT exempt, CZR said, would save many jobs as well as prevent both the informalisation and de-industrialisation of the economy.

“It is also a welcome relief to consumers as rice is one of the 17 basic commodities that every household needs,” CZR said.

However, the CZR said ambiguity remained on the effective dates of implementation.

“We, however, wish to point out that the effective date of the exemption has led to ambiguity in the application of the law. According to legal advice received and in our understanding of the law, rice was VAT exempt by virtue of SI 26A/2017. This interpretation is in accordance with the intention of the Minister of Finance as set out in the press statement from the Ministry of Finance in February 2017. In order to resolve any ambiguity and to put the matter to rest, it is necessary for the Ministry of Finance to issue another SI with an effective date of February 16, 2017,” CRZ said.

“We will continue engaging the Ministry of Finance to address the ambiguity which has been created. We are confident that they will agree to this in the interest of business.”

The country in 2019 banned the use of multiple currencies after a decade to introduce a mono-currency system under the Zimbabwe dollar. The decision was reversed in 2020 with the re-introduction of a multiple currency system.

Recently, the Ministry of Mines and Mining Development increased mining fees by as much as tenfold before reversing the move a few days later after an industrywide outcry.

In the mining sector, the government closed all diamond mining companies operating in Marange, Manicaland to form one wholly state-owned unit the ZCDC. Recently, government allowed the previous players to go back to Chiadzwa.

Policy inconsistency has contributed to the plunge in foreign direct investment (FDI).

It has plummeted from US$717,1 million in 2018 to US$259 million last year. The country’s FDI is projected to plunge further this year to just over US$150 million.