Fuel tax hike rational

HARARE - On January 14, 2015 Finance minister Patrick Chinamasa increased duty on the importation of fuel hardly a week after new Energy minister Samuel Undenge had ordered fuel dealers to reduce the pump price in line with falling world oil prices.

Global oil prices had tumbled to a six-year low with brent crude oil selling below $50 per barrel.

The decline was attributed to weak global demand coupled with Organisation of Petroleum Exporting Countries (Opec)’s decision to maintain output levels of not more than 30 million barrels per day.

Undenge’s directive resonated with the motoring public and general consumers who had seen their counterparts elsewhere reaping immediate benefits from the drop in oil prices.

So Chinamasa, understandably, would receive a lot of flak for trying to reverse the gains that come with the drop in the prices of oil.

Chinamasa’s duty meant a 10 cent increase in the prices of petrol and diesel per litre. Duty on petrol went up to $0.45 from $0.35 per litre and diesel $0.40 from $0.30 per litre.

Analysts and consumer watch dogs argued that the January 14 increase in fuel duty takes away the benefits due to consumers in the wake of fallen oil prices.

But there are no benefits to talk about because a reduction in the prices of goods and services does not only depend on the drop in fuel prices, at least in our situation.

The Zimbabwean economy, since dollarisation in 2009, has been characterised by overpricing of goods and services.

It is not a secret that the US dollar is overpriced in Zimbabwe.

Calling for a reduction in the prices of fuel from where they were pegged at $1.44 per litre (petrol) and $1.38 per litre (diesel) without adjusting downwards prices elsewhere in the economy, in my view, does not make sense.

Zimbabwe is running a current account deficit in which the country is relying more on imports than exports.

As a result, the trade deficit has been widening — showing worrying levels of capital flight from Zimbabwe benefitting manufacturers in countries we are importing from.

According to the Zimbabwe National Statistics Agency (Zimstat) imports in the first 11 months of the year stood at $5, 8 billion while exports amounted to $2, 8 billion.

Zimbabwe’s trade deficit stood at $3 billion between January and November last year.

To bridge this, Chinamasa has had to rely on taxes which have choked business to the extent of forcing closures.

However, by his own admission, Chinamasa cannot continue introducing a raft of taxes on the people of Zimbabwe because they are already heavily taxed. Otherwise that would be tantamount to milking a bleeding cow.

So the increase in fuel duty which subsequently stopped a further round of fuel price decreases could have been done to help raise money for government.

On average, government could be collecting between $12 million to $15 million monthly as a result of the tax increase.

By the end of 12 months, government would have collected between $144 million and $180 million. In five years that would be between $720 million and $900 million.

Now, if the government of Zimbabwe can raise this kind of money in five years why would it need to go to the likes of Development Bank of Southern Africa (DBSA) where it borrowed $250 million for the dualisation of Plumtree-Mutare and Harare-Mutare highways?

The 10 cent increase is not going to be affected by the price movement because it has been absorbed now and this is why it made sense for Chinamasa to effect that at a time the prices of oil are going down.

For that to happen Chinamasa had to come in with his 10 cents so that the new increase would come between a price drop of 10 cents but also against further drop by the same.

What is lacking in Zimbabwe is holding our government to account for the public money.

We have developed a disconcerting habit of whining and blaming without offering solutions.

What Zimbabwe needs at the moment are people who can closely analyse government decisions and put a strong case for better policies by offering alternatives where its decisions lack justification.

Comments (1)

Well said and balanced article, true government has seen and is aware that Zimbabweans will never at any time ask for accountability. I feel sorry for the future generations as they are already debt burdened. From your reasoning there is no need to be having ZISCOSTEEL still idle as all we needed was to have professionals run the company with resources from the Gvt that is a once off grant or bail out of some sort.

Moses - 24 February 2015

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