Tough conditions for rebate benefiting firms

Zimbabwe's new finance minister said he would accelerate plans to pay arrears to the World Bank and the African Development Bank. Picture: Reuters/Philimon Bulawayo

Manufacturers benefiting from rebate facilities will have to provide full proof of benefits accrued from utilisation of the production incentives or risk having them immediately withdrawn with stiff penalty imposed, according to a Government Gazette published last Friday.

Although some analysts argued that the new practice was tantamount to micromanaging companies by Government, it came on the back of widespread reports that some firms have been diverting the benefit to other areas mainly personal other than that for which it was granted.

In his 2019 National Budget Statement, Finance and Economic Development Minister Mthuli Ncube, granted rebates to manufacturers in the furniture, clothing, and pharmaceutical sectors to enable interested companies to import critical equipment and raw materials.

“In line with the Transitional Stabilisation Programme thrust of supporting sustainable micro, small and medium enterprises growth and development, the Budget proposes to avail a Ring-Fenced Manufacturer’s Rebate Facility,” said Minister Ncube.

He said the support, which has been availed through a Rebate of Duty Facility, enabled companies to import capital equipment and raw materials without payment of customs duty and Value Added Tax.

Minister Ncube said Government had, over the years, provided targeted support to the agriculture, energy, manufacturing, mining, tourism and transport industries.

In theory the facilities are expected to assist companies reduce the cost of inputs
and equipment, thereby stimulating production.

During the period 2015 to October 2018, the value of goods imported duty free through availed facilities amounted to about $1,14 billion according to the 2019 National Budget Statement.

“In order to consolidate the gains realised by local industry, Government will renew facilities that have expired, subject to set conditions and, in some cases, expand the list of inputs and beneficiaries of Rebate Facilities,” Minister Ncube said.

 Put the rebate facility to good use or loose it

However, in renewing and extending some of the facilities, Government now requires beneficiaries to prove that the facilities were being put to good use and not abused.

Government inserted additional regulations in terms of section 235, as read with section 120 of the Customs and Excise Act (Chapter 23:02).

The new regulations, which take effect from January 1, 2019, now require beneficiaries, for example those in the clothing sector, “to present to the Minister of Finance and Economic Development, an annual report in a form approved by the minister, showing full particulars of all the benefits achieved in the utilisation of the rebate facility granted in terms of these regulations”.

The report is expected to be in a manner that can ascertain or account, to the satisfaction of the minister, the incremental employment levels achieved by the manufacturer; capacity utilisation levels attained from the use of rebate; value of the new investment received since the employment of the rebate; growth in the manufacturer’s output; and research and development initiatives carried out by the manufacturer.

“If a manufacturer fails to produce the annual report in a manner approved in terms of subsection (1), the rebate shall be immediately withdrawn and any rebated goods received by the manufacturer during the period when the report was not so produced shall be deemed to have been used for a purpose other than that for which the rebate was granted.

‘The manufacturer shall be required to pay the rebated revenue forthwith and the penalty for failure to keep records,” reads the Government Gazette.

The annual report by manufacturers shall be submitted within 30 days
from the end of the 12 months’ period calculated from the effective date of these regulations in the first year and thereafter from the 1st of January every year subsequently.

The amended regulations for the clothing manufacturers, under SI 277 of 2018, has a list of goods eligible for rebate while regulations for furniture manufacturers has a list of the eligible goods and also of approved manufacturers such as Adam Bede, Teecherz Furnishers, KDV Bedding among others.

 The new decision queried

Analysts, however, questioned the practicality of these new regulations saying the legal requirement was akin to the minister micromanaging companies.

“Basically they have increased the amount of bureaucracy on something that did not require it. If the rebate is on capital items then the verification done on importation should be sufficient and if they suspect abuse, then inspections would be a better method to verify post importation,’ said Walter Mandeya of Trigrams Investment.

He said rebates should not be seen as specific injections, but more of cost savings.

“Zimbabwe is open for business and ease of doing business reforms demand less bureaucracy. Fewer forms and returns,” said Mandeya while also highlighting the burden this will have for the Minister to go through such paperwork.

Zimbabwe National Chamber of Commerce chief executive office Christopher Mugaga, shared the same sentiments and said the move was nothing short of rent seeking.

“This is another way of stifling enterprise development, because there are many factors that are involved in running a business. A manufacturer might receive the rebate but other factors such as the cost of production might increase and prevent the company from employing more or increasing its output.”

“In some cases, the rebate will help the company survive economic turbulences but according to the regulations it would have failed. There are many factors and outcomes from a rebate, which might not be part of the new regulations, but would have been good for the company, like an improvement in the quality of product or of competition,” said Mugaga.

Confederation of Zimbabwe Industry (CZI) president Sifelani Jabangwe, said while the concept of accountability is noble, it will be interesting to see how the new regulations will be administered.

“I think it’s in order, from an accountability perspective, we need to be accountable for some of these things, though we must be careful how we then assess it because sometimes the rebate just helps you to stay open, it might not help you to increase numbers, it actually maintains numbers from retrenching so that’s the most important thing.

“It’s just the modality, but when you look at the principality of insuring that, because when a rebate is given it means that there is a reduction it’s almost like money that you are being given, there is a reduction in costs that you are going to incur so it’s important that we account for it.”

He, however, said it will be interesting how Government will administer this depending on the number of companies that would have applied.

“On accountability some people have been criticising saying things are being done in an open-ended way and I suppose for any benefit one of the responsibilities that we have is to account, but the administrative aspect from the company and from the Government itself will be interesting,” he said.