Car imports have dropped by more than 80 percent since the introduction of duty on luxury vehicles in foreign currency last month, according to the Zimbabwe Revenue Authority (Zimra).
Most of the vehicles currently being cleared are those exempt from paying duty in foreign currency as they were bought before November 22, 2018 when the law became effective.
With effect from November 22 this year, the Government gazetted regulations to effect payment of duty in foreign currency for luxury vehicles, a move largely meant to curb the influx of pre-owned vehicles.
Commercial vehicles are exempt from paying duty in forex in support of productive sectors.
Since most Zimbabweans cannot afford new cars, they have resorted to second hand vehicles mainly from Japan and United Kingdom, which have been blamed by some environmental campaigners as being among the major causes of air pollution. Since the introduction of the multi-currency regime, commonly referred to as dollarisation in 2009, Zimbabwe has imported pre-owned vehicles worth about $5 billion.
And this year alone, the pre-owned vehicles imports had reached nearly 330 000 by November. Zimbabwe is facing acute foreign currency shortages which have seen the country struggling to pay for critical imports such as fuel, wheat, drugs and water treatment chemicals. Some companies, including manufacturers have been forced to scale down and introduce short working hours due to raw material shortages.
Decrease in vehicles imports
Zimra spokesperson Francis Chimanda, told Business Weekly through e-mailed responses to questions, that the vehicles being cleared had decreased from a daily average of 200 to only 40 amid indications the figures are likely to continue plummeting.
“The Government policy objective is very clear on collection of duty in foreign currency and the economic benefits that will accrue to the nation. It is therefore given that there will be a reduction in importation of designated goods and as such duties collected from these goods including motor vehicle imports will follow suit. Therefore, to Zimra and to the treasury, duty in foreign currency is a benefit,” said Chimanda.”
Analysts say the massive reduction of in vehicle imports — while it will help preserve scarce foreign currency in the economy, will significantly affect government revenue inflows.
“Revenue from car import duty has been very significant but with the new policy, this will be heavily affected. It would have been better if the government had raised duty payable in local currency or reduce duty payable in foreign currency to maintain revenue inflows into the national purse,” said Tito Serema, a Harare based economic analyst.
Other observers said that many Zimbabweans had no access to free funds and the majority of them were buying from the unofficial market. Now, given the new law which criminalises trade in foreign currency on parallel markets, very few were willing to take the risk.
Chimanda said about $3,5 million was collected since November 22, 2018, but mostly from people who imported vehicles prior to November 22 for transitional clearances.
“It should be noted that this amount of duty was mostly exempted from payments in foreign currency as per (the Finance and Economic Development) Minister’s provision for transitional clearances of already bought and consigned motor vehicles as of November 22, 2018.”
By reducing the influx of second hand vehicles, the Government hopes this would enable the country to guide and direct the growth of the crucial sectors, Chimanda added. However, critics say while the measures were laudable to the extent of preserving forex, the local industry was underdeveloped to deserve such protectionism.
“The decision by Government (for) duty to be paid in foreign currency should have been made after a local vehicle manufacturing company had been put in place or capacitated, then protect it. At the moment there is nothing to protect,” said Duly’ general manager Elliot Shoniwa.
“It is an opportunity that will create jobs, better transport system which will be reliant and affordable cars.”
President of Motor Industry Association of Zimbabwe, Simplisio Samba, said the direct implication of duty in forex for the industry would be reduced number of cars imported.
“It will reduce the influx as was before and second hand vehicles should be imported by franchise holders so that only well supported models are brought in and this keeps the motor industry functional,” he said.
Zimbabwe has four car assemblers, but statistics show that they have only sold less than 250 units this year. The paltry figure does not compare well with 5 000 new vehicles that have been imported.