Fuel price cut to chop taxes by $90 million

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Taurai Mangudhla
The Zimbabwean Government’s gave up more than $90 million yearly in potential excise duty on fuel when it decided to cut excise duty on fuel earlier this week as part of an internal devaluation process.

The move is expected to reduce the cost of doing business and make Zimbabwe a more competitive destination for capital.

According to calculations based on official fuel consumption figures, the decision to reduce petrol excise duty by $0,065 a litre cost Treasury about $30,8 million in potential revenue while reduction of diesel duty by $0,07 a litre cost another $56,2 million, based on an average of the two petroleum products in 2015.

This brings the total opportunity cost to $87, excluding the component from paraffin whose excise duty was also reduced by $0, 07 a litre. Based on 2016 consumption of paraffin, 90 million litres, Zimbabwe has given up on about $6,2 million.

According to figures obtained from the Zimbabwe Energy Regulatory Authority (Zera) last year, while the figures are a moving target in 2015 Zimbabwe imported 873 million litres of diesel, 505 million litres petrol, 51 million litres paraffin and 27 million litres of Jet A1.

In 2016, Zimbabwe imported 733 million litres diesel, 444 million litres petrol, 90 million litres paraffin and 48 million litres Jet A1

This brings the average for petrol and diesel consumption for 2015 and 2016 to 30,8 million litres and 56,2 million litres respectively.

Although figures show that diesel imports fell by 140 million litres or 16 percent and those of petrol by 60 million litres or 12,1 percent between 2015 and 2016 with prospects of further decline.

The Zimbabwe Revenue Authority (Zimra) insists duty collections on fuel will not be affected by the Government’s decision to reduce taxes owing to increased consumption of petroleum products.

“The reduction in the rates of excise duty on fuel is a welcome development to industry and commerce in the sense that fuel is a component of the cost of production and one of the major drivers of inflation in any economy hence the lower rates of duty, all things being equal, will translate to improvements in economic fundamentals,” Zimra said in emailed responses.

“The reduced rates will also not necessarily result in reduced collections under excise duty in that volumes are likely to increase owing to the lower costs and as you appreciate, revenue on fuel is a function of volumes and rates,” Zimra added.

Zimra also expects the reduction in the rates of excise on fuel to complement the robust measures in place to curb smuggling, such as the Electronic Cargo Tracking System that monitors movement of transit goods (including fuel) from point of entry to exit; border patrols in collaboration with law enforcement agents, post importation audits and compliance checks, as well use of non-intrusive inspection equipment.

Zera CEO Engineer Gloria Magombo said the reduction in excise duty on fuel will not affects statutory payments to the regulator by industry.

The Ministry of Finance and Economic Planning on Monday announced excise duty on petrol fell by 6,5 cents a litre from 45 cents per litre to 38,5 cents a litre, while that on diesel and paraffin declined from 40 cents a litre to 33 cents a litre.

“The Minister of Finance and Economic Development Honourable Patrick Chinamasa has in terms of section 225 of the Customs and Excise Act (Chapter 23:02) reduced Excise Duty on fuel with effect from 23 January 2018,” The Minister of Finance said, adding: “The reduction in Excise Duty will have the impact of reducing fuel prices.

“This will also have the impact of reducing the impact of fuel costs in the economy’s overall production cost structures across all sectors.”

Energy and Power Development Minister Ambassador Simon Khaya Moyo on Tuesday followed up by ordering price cuts on fuel with immediate effect.

The move, seen as part of an internal devaluation process, is expected to bring cheer to motorist and industry as fuel constitutes a major component of the overall cost of running a business.

Ambassador Moyo a 3,6 percent reduction on the petrol price ceiling to $1,35 a litre, a 5,4 percent on the diesel price ceiling to $1,23 a litre and a 5,6 percent on the paraffin price ceiling to $1,17 a litre on all pumps in the country.

Prior to the downward review on duties, petrol was sold at a maximum of $1,40 a litre while diesel and petrol were sold at a maximum of $1,30 and $1,24 a litre respectively on all pumps.

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