Govt may suspend controversial moves on retail and VAT, and that would say much about how policy is made

Zim supermarkets deal with low customer counts due to forex rate distortions (pic: newZWire)

The government may suspend its unpopular decisions on trading and Value Added Tax to give time for talks with businesses, according to a leading industry group.

Finance Minister Mthuli Ncube announced new measures that force retailers to order goods only from wholesalers, while cutting out unregistered informal traders – the bulk of Zimbabwe’s commerce – from buying goods from manufacturers and wholesalers. Ncube also dropped VAT exemptions on some basic goods, which has increased the price of basics such as bread and meat.

“As business we met with government this (Saturday) morning to receive feedback on the various submissions we have made on the Finance Act as well as SI 249 of 2023 and SI 248 of 2023 and a moratorium was given,” CZI CEO Sekai Kuvarika said in a note to members, referring to the legal instruments that put the budget provisions into action. “We are pleased to advise that the government has provided a moratorium so business can continue to trade on the basis of December 2023 conditions while the engagements are being finalised.”

She says the meeting discussed the route-to-market issue, the zero-rating of basic goods, a sugar tax on beverages, and the 10% margin on the exchange rate for formal businesses. There was no immediate comment from Government.

The informal market is a result of the evolution in the economy, and manufacturers are just reaponding to what the market wants, Kuvarika says. 

“In the first place, it’s the consumer who moved to downtown and I will be foolish not to move the product there,” she says. 

Broken chain: Policy formulation

The measures have already been gazetted into law. Any change will not only require legal instruments, but it would, more importantly, add new chapters to the government’s poor record on policy formulation and consistency. The surprise policy measures were announced on November 30, after months of “budget consultations”. The budget was passed two weeks later in Parliament, with little time spared for debate with business groups. MPs only managed to squeeze out some concessions from Ncube in a last-day marathon session on the night of December 14.

Earlier this week, ZIMRA released regulations to enforce the measures. In his 2024 budget, Ncube said forcing informal traders out of the supply chain was necessary to “restore the supply chain from the manufacturer, wholesaler to retailer”.

What business proposes

Business has told government that the step will hurt their operations, many of which depend on sales from the informal market. Instead, business point to the exchange rate as the source of the crisis. They want government to lift rule that limits retailers to within 10% of the overvalued formal exchange rate.

In its proposal to government, CZI says the new trading measures will only see foreign goods pushing out local peoducts. 

“The market share for smuggled goods has been recorded at around 30% in some manufacturing sub-sectors and giving away that market is giving away our revenue and jobs,” CZI says. 

This will see industry capacity utilisation falling, cause job losses, and deny government of corporate tax and PAYE. 

The CZI says a manufacturer must be free to pick whatever trade channel suits their products.

“Insisting that all manufacturers sell to wholesalers means, for example, bread will have to be sold to a wholesaler before it gets to the supermarket or local convenience store or tuck shop; the same with other perishable products.”

Each part of the supply chain has key role, with retail and wholesale breaking down bulk goods for the market, CZI told Government.

“Small traders and the informal sector are another channel,” CZI says. “The integrity of these channels needs to be maintained if trade and manufacturing are to continue performing.”

CZI proposes a 3% presumptive VAT on all goods sold to traders who are not registered for VAT. That money would be remitted to ZIMRA.