IN economic theory, governments often “internalise externalities” by imposing corrective taxes designed to align private costs with broader social costs.
This approach adjusts the marginal private cost of a good or service produced to reflect the true economic burden it imposes on society.
Zimbabwe has adopted this approach through a series of taxes, including a 20% plastic bag tax, a 1% fast-food tax and a US$0,001 per gramme sugar tax on beverages.
Conceptually, these taxes are intended to compel food companies to account for the marginal external costs of their products.
For instance, a 1% tax on a US$1 hotdog would push its price to US$1,01, with both producers and consumers sharing the added tax burden, ultimately reducing demand for hotdogs.
However, the practical impact has been uneven. The tax disproportionately affects low-income consumers, who make up the bulk of Zimbabwe’s fast-food and soft drink market, by potentially reducing their purchasing power.
In response, businesses such as Innscor Africa and Simbisa Brands have opted not to pass the cost onto consumers, instead they are pushing volumes by lowering margins to offset the tax and maintain prices.
Although this strategy benefits consumers, it puts growing pressure on profitability.
- CTC approves six mergers
- CTC approves six mergers
- Shelter Afrique lays out Zim game plan
- Innscor declares dividend after impressive growth
Keep Reading
For example, Innscor Africa recorded revenue of US$1,086 billion in the financial year 2025 (FY2025), but generated only US$50,99 million in net profit, in line with my earlier forecast of US$1,076 billion in revenue and a net profit projection of just above US$50 million, translating to a narrow net profit margin of 4,7%.
Since the sugar tax was introduced in January 2024, Innscor Africa has reportedly paid over US$10 million. Spread over the 18 months, this equates to roughly US$0,56 million per month, or about US$6,67 million for their FY2025.
Adjusting for this, Innscor’s FY2025 net profit would rise from US$50,99 million to around US$58 million, while FY2024 profit would increase from US$48,2 million to US$52 million.
The net profit margin would have expanded from the reported 4,7% to 5,3% in FY2025, and from 5,3% to 5,7% in FY2024. Factoring in the newly-introduced plastic bag tax would have further fattened margins to around 6% (pre-2018 levels) or higher if more of such taxes were reversed.
Innscor management views the decline in profit margins as a deliberate strategic choice. They had to decide between absorbing these pigouvian taxes, reducing marginal private cost to maintain sales volumes or passing the costs to predominantly low-income consumers, which could lower sales volumes and leave production capacity underutilised.
They chose to absorb the cost, prioritising volume over margins, and this is a rational choice given that they have invested over US$300 million in the last six years in factories and they cannot allow production to fall below optimal capacity.
Simbisa Brands reflected a similar tax impact in its FY2025 performance. Revenue came in at US$306,5 million, just 1,14% below my forecast of US$310 million—a relatively narrow miss. Earnings before interest and taxes (EBIT) margins outperformed, reaching 9% against my 8% projection (when foreign exchange gains are excluded, EBIT margins revert to 8% as projected), while net profit margins slipping from 5,6% in FY2024 to 5,5%.
Historically, net margins have been cyclical, averaging
To Page 12
6% between 2015 and 2018 before rising to about 9%
from 2019 to 2023, a period shaped by inflationary pressures and exchange rate volatility.
The recent compression to 5,5% signals both a potential reversal of that upward trend and the effect of the fast-food tax, which amounted to US$0,9 million in the second half of FY2025 and is expected to surpass US$2 million in FY2026.
The typical net profit margin for fast food companies generally falls within the 6% to 10% range. For example, international brands such as KFC reported an average margin of 5,97% between 2021 and 2024, with a slight increase to 6,27% for the quarter ending March 2025. In comparison, Wendy’s maintained an average margin of 8,75% over the same period.
Without these taxes, net profit margins for Simbisa Brands would have rebounded to around 5,8%, consistent with the average pre-2018 level of 5,9% and the 6% industry standard. Layered on top of these taxes are Intermediated Money Transfer Tax (IMTT) charges, erratic electricity supply, and escalating operating costs, which together continue to erode margins with shareholders taking much of the impact.
On the other hand, policymakers justify these taxes as a necessary tool to raise revenue for the underfunded sectors such as public healthcare.
Yet, the unintended consequence is a growing tension between the government’s fiscal goals and the private sector’s pursuit of profitability.
In effect, the policy raises a broader economic question of how to balance revenue mobilisation with the imperative for sustainable economic growth.
