The ManicaPost
Kudzanai Gerede Business Correspondent
GOVERNMENT has been urged to be consistent with its economic objectives when crafting policy interventions as failure to this could result in gains realised under incumbent legislations faltering.
This is on the background of the recently imposed Statutory Instrument (SI) 20 of 2017 that has been largely viewed as negating some key tenants meant to be achieved by the SI 64 of 2016 put into effect last year.
Finance and Economic Planning Minister, Cde Patrick Chanamasa, recently introduced SI 20 which imposed a 15 percent Value Added Tax (VAT) on basic foodstuffs such as cooking oils, cereals and all meat products.
The instrument has, however, been temporarily suspended for wider consultations following an outcry from the consuming public over outrageous price increases.
Retailers were quick to respond in compliance to the new instrument by increasing prices of basic foodstuffs.
The development has been met with agitation from the general public, fuelled by failure by Government to act on retailers who continue to charge exorbitant prices following Government reversal of the VAT imposition.
Analysts have expressed concern over the introduction of VAT on the selected food items at a time product uptake was already suppressed. This they said would stifle local spending.
They say the latest development speaks to the need for Government ministries of Finance and Industry to pull from the same ends of the rope when it comes to the resuscitation of the local industry.
Last year, Government under its Ministry of Industry and Commerce in an attempt to boost local manufacturing industry introduced SI 64 as a temporary measure to scrap cheap import products from the Open General Import License (OGIL) and this gave locally produced items market space.
Export products had dominated the local market and this was on the backdrop of poor competitiveness pricing that kept local products in the periphery on most supermarket shelves with the intent that SI 64 would help improve aggregate demand which translates to better economies of scale for local producers.
This has a direct effect on competitive pricing of local products.
Industrialists welcomed the development as pro-productive, stressing out the need to further incubate local industries which continue to face a myriad of challenges such as out-dated equipment, capital constraints and high production costs among others.
The latest instrument has, however, propelled price increases of most foodstuffs which were scrapped from the OGIL.
Analysts have warned this could fuel levels of smuggling of restricted food items which have a ready local demand.
“SI 64 is a temporary incubation tool and there is need for local industries to have developed to levels of competing with external products once flood gates are open. Currently tax increases on products produced by most of our struggling industries will burden both the demand side and ultimately the supply side” said Mr Pepukai Chivoore, an economic competitiveness expert.
“Disposable incomes are currently very little and cash shortages are biting hard, so price increases will dampen demand which is very problematic for the growth of our economy,” he added.
Analysts have also stressed that Government should ease the tax burden on local industries as the country remains one of the most taxed nations in the world. Government is grappling with fiscal deficits annually to meet its expenditure owing to waning revenue flows.
“Government should look at ways to consolidate its revenue base through various other channels that are not threatening to the growth of industry.
VAT has been in place long back, but we have to consider the state of the economy right now, it certainly doesn’t need to be reinstated because we are having a situation where there are very low disposable incomes hence this offsets demand of local products and goes down to affect industry,” he added.
Consumer Council of Zimbabwe president, Ms Roselyn Siyachitema, told Business Post that her association was yet to complete its research on selected product items that have been affected by the latest instrument and pledged to push for favourable prices once they finalise their research.
“We are still doing our research as to by what extent the price increases have been pegged. Right now we are still doing our research and hopefully in a few days’ time we will be able to come up with detailed facts on the ground,”
“We will engage policy makers upon finalisation of our research but for now we are speaking to retailers on getting actual facts,” she said.
However, a check by Business Post on Tuesday afternoon revealed that retailers have stuck to their price increases. Price of 2kg rice has been raised from an average of US$1.60 at the beginning of the year to around US$2.10, with 1kg beef that was at US$3.50 now at around US$4.40 on average.
Zimbabwe Grain Millers Association president, Mr Tafadzwa Musarara, said retailers were simply abiding by the laws of the land, hence Government should enact an instrument suspending SI 20, not by merely announcing it verbally.
“There has to be Statutory Instrument which speaks to suspending the one put in place first for business players to comply with the suspension.
“We have to consider that come six months down the line when companies go through audits ZIMRA will claim their money using the instrument (SI 20) and if we do not have a counter instrument seconding the suspension it becomes problematic for retailers who would have complied to the suspension today,” said Mr Musarara.
