eBusiness Weekly
Golden Sibanda
Treasury might be losing over $300 million in potential annual Value Added Tax (VAT) revenue due to smuggled products that do not pay any taxes, the country’s single largest manufacturing industry representative organisation, the Confederation of Zimbabwe Industries (CZI) has said.
The sentiments were expressed by CZI president Sifelani Jabangwe, in an interview with Business Weekly, backing similar assertions by the Zimbabwe National Chamber of Commerce (ZNCC) following a study conducted by the business lobby group.
Mr Jabangwe said the influx of imported products was not only negatively impacting the viability of manufacturers, industrial competitiveness and opportunity to increase production and job creation, which the informal traders also desperately needed, but was also prejudicing the Treasury significant potential inflows to the fiscus.
ZNCC chief executive Chris Mugaga, last year told a conference organised by Buy Zimbabwe, a proponent for local products consumption, that as much as $2,5 billion in smuggled goods could be finding their way on to the domestic market through porous borders, sometimes with the aid of corrupt officials at ports of entry.
Mr Mugaga said while SI64 was in force, the continued presence of imported products on the informal market, whose importation the Government had restricted through strict licensing, was evidence that the products were still coming into the country in large quantities, but only this time through informal channels.
The imports have spawned swathes of vendors along and across major streets of the southern African country, with the informal vending being most pronounced in the capital Harare where the traders compete directly with established businesses, especially formal retailers, as they sell all kinds of wares right on their entrances.
“We need to organise these people so that they do not interfere with those established businesses that are paying rent and so forth. The biggest problems are the big warehouse operators that import (smuggle) and supply the vendors,” Mr Jabangwe said.
Amidst an alarming level of arbitrage in Zimbabwe, including currency trading, informal traders have not been left behind in the shortcut avenues of making quick bucks.
They seized the gaping opportunity, selling their products at prices significantly cheaper than formal retailers, but insisting on payment in mostly bond notes cash, which they later sell on the black market at a huge premium.
As such, there is an astonishingly vibrant informal market for largely cheaper imported goods and the contraband range covers just about every household product one could surmise such as food stuffs, toiletries, health and beauty products, clothing and footwear, electrical goods, fresh produce, chemicals and all.
This is despite the fact that Government in 2016 introduced a statutory instrument (SI 64) as part of efforts to further reduce the number of goods importers could bring through a general import permit, in an attempt to
create latitude for recovery of local industry.
This came as the local manufacturing industry has struggled to increase production levels under the weight of unabated growing influx of cheaper imported products, the bulk coming from South Africa, which is already Zimbabwe’s single biggest trading partner, accounting for 40 percent of the country’s external trade.
At the height of the challenges afflicting Zimbabwe’s manufacturing industry; manufacturing capacity utilisation fell to an average of 10 to 20 percent, but gradually picked after dollarisation to hover between 37 percent and 47 percent.
Mr Jabangwe said that the products sold on the informal market along the street pavement were markedly cheaper as informal traders used the hard currency to import and do not pay taxes while formal business finance their operations largely through RTGS money and pay high taxes.
“You know we do not have jobs and it’s a big challenge for us to create jobs for them (vendors), we need those products to be manufactured by local industry. But the biggest problem is not even them (vendors) are not the ones bringing the products, but it is actually big time smugglers.
“So we are working with Government on that where we are saying we have to stop those products from coming and some of those products are readily available in Zimbabwe.
“When you try to deal with just them (vendors) you are not dealing with the actual root cause and that is a responsibility for Government. I think it was ZNCC which said smuggled goods could be as high in terms of value, as $2,5 billion, so could calculate how much VAT that is.
“Ten percent of $2 billion is $200 million, which means 15 percent would be around $300 million, which is a lot in terms of the impact that it would have on the fiscus, so they (smugglers) are not just stealing from business but they are actually stealing from Government because most do not pay duty.
“So we have a commit at CZI that is working together with ZIMRA under Government officials trying to attend to these issues where we are saying manufacturers are the best to identify goods that have been smuggled.
“We know right now that a lot of attention will be going to the elections, but post elections we are saying there is no bigger action in terms of driving the impact for industry that you can take more than just the smugglers.
Mr Jabangwe said Zimbabwe had no excuse for failing to control the growing scourge of imports, given its potential negative impact on particularly industrial recovery, but also the entire economy as well.
He said that the United Kingdom, which a huge coastline to monitor and once had a similarly huge problem with smuggling had managed to put a stop to the smugly.
Similarly, he said South Africa, which also has massive coast line to worry about, was able to minimize the negative impact of smuggled goods on its domestic industry.
In Zimbabwe, where more than three quarters of the population is considered to be unemployed, the majority of the people survive on some kind of informal business activity.
