Business, economists call for additional fuel tax cuts

As the devastating contagion effects of the Russia-Ukraine war continue to spread across the globe, local industrialists and economists have called on authorities to further slush fuel taxes in order to cushion the economy against the continued increasing energy costs.

The calls have intensified as the Zimbabwe Energy Regulatory Authority (Zera) announced yet another round of fuel price increase this week.

Zera in a statement said; “Prices have been set in accordance with oil price patterns on the international market, which the Authority is continuously monitoring.”

The rapid rise in crude oil prices following global recovery from the Covid-19 pandemic and then the switches in supply chains as a result of the Russia-Ukraine conflict, saw the retail prices in Zimbabwe rise to US$1,63 a litre for petrol and US$1,71 a litre for diesel.

At US$1,71 per litre now, diesel is 11 US cents up from the March price of US$1,60, while petrol is now pegged at US$1,63 per litre, 4 US cents more than the price in March.

Last month Minister of Finance and Economic Development, Professor Mthuli Ncube, intervened by reducing one component of the tax, in the NocZim redemption levy. Mthuli told a business breakfast meeting last month that it was not easy to come up with risk mitigation measures.

“But one thing we have done is to lower the taxes on fuel from about 12,7 US cents to 8,7 US cents, and that’s where we are now, we could lower it further, but it’s difficult to get to zero because we have pressures as Government, such as civil servants’ salaries and so forth,” Mthuli told the delegates.

The prices follow a formula that includes all costs, including the fuel duty, and maximum mark-ups for oil companies and service stations.

Duty accounts for US$0,30 for every litre of fuel imported via pipeline and US$0,35 per litre for fuel imported through road haulage. The Zinara Road Levy (US$0,06), Carbon Tax (US$0,04) and other taxes including the Debt redemption tax are then added on to take the total taxation to US$0,49 per every litre consumed locally.

Confederation of Zimbabwe Industries president, Kurai Matsheza said; “The war in Ukraine has affected us and is public knowledge as fuel prices have been going up, despite the Government trying to help by lowering taxes but levels are still not at the desired level to cushion us. In terms of supply logistics, the supply chains have been disrupted because of the war.”

Businesses in the petroleum value chain, especially the thriving retailers, will then pay Zera licence fees and additional taxes levied on operating income. Close to 90 percent of the fuel imported in Zimbabwe is transported via the Beira to Harare pipeline while 10 percent is imported through road haulage by independent petroleum companies.

Oil prices were back up on Wednesday after volatile trading as the market weighed in to China’s plans to support its economy against a possible coronavirus lockdown in its capital Beijing.

In the Thursday morning trade, Brent crude futures went up by US$2.67, or 2.6 percent, to settle at US$104.99 a barrel. On Monday oil trading was choppy with Brent touching a session low of US$101.08 a barrel, pressured by concerns over demand in China, the world’s largest crude oil importer.

Locally as a net importer of fuel, the country will continue to be hit by the price increase, but our authorities have prioritised income generation at the expense of cost push inflation.

Economist Dr Prosper Chitambara noted; “This is not the end of the crisis we are witnessing as fuel affects all sectors of the economy, because it is an input for almost every product we produce in this country.
Government needs to raise its hand now and cut fuel taxes and levies in order to save the economy from inflation and the currency from losing value rapidly”.

Chitambara also acknowledged that the issue of fuel increase is a problem we cannot entirely solve locally as it is being caused by geopolitical factors.

Economist Tinevimbo Shava, also said the government should immediately cut taxes to reduce the damage.

“What government should immediately do is to cut taxes to cushion the economy from the external shocks as 50 percent of the country’s fuel prices come from taxes,” Shava said.

As fuel prices continue to rise, inflation has also kicked in as manufacturers respond to the rising cost of production caused by the geopolitical tensions currently unravelling.

Latest figures from the Zimbabwe Statistics Agency (ZimStats), year-on-year inflation rate for the month of April 2022 stood at 96,4 percent. Meaning that prices increased by an average of 96,4 percent between April 2021 and April 2022.

The month-on-month inflation rate in April 2022 was 15,5 percent gaining 9,2 percentage points on the March 2022 rate of 6,3 percent. Meaning that prices increased by an average rate of 15,5 percent from March 2022 to April 2022.

“This will definitely reverse the gains done on inflation in the past as well as reduce disposable incomes when prices are adjusted resulting in reduced aggregate demand in the economy,” Chitambara added.