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Zimbabwe’s government has shelved a 15 percent value-added tax on basic foodstuff which came into effect last week, following an uproar from consumers already burdened by a struggling economy, Finance Minister Patrick Chinamasa announced on Tuesday.
Faced with shrinking tax revenues and mounting government expenditure, Chinamasa had on February 1 introduced the standard 15 percent VAT rate on previously zero-rated and exempted products, including rice, margarine, meat, cereals and potatoes.
The move had seen prices of the basic foodstuffs rise, further compounding the woes of consumers in a country battling a 90 percent jobless rate and a deepening economic crisis.
In a ministerial statement in Parliament on Tuesday, Chinamasa said the tax had been put on hold.
“Following the debate that took place here and stakeholder representations, wherein concerns have been raised regarding potential informalisation due to perceived price increase, I propose to shelve the implementation of Statutory Instrument 20 of 2017 which levies VAT on potatoes, rice, margarine, maheu and meat products,” Chinamasa said.
“This will allow for further consultation with relevant stakeholders and those consultations, I will start them with this august House. I need the august House to give me guidance. I must tax something to raise money to pay for service delivery, allowances, and wages. So, we need to have guidance so that we understand and agree on which items to tax.”
VAT is the biggest contributor to Zimbabwe’s revenues, accounting for $942 million in 2016, 27 percent of total collections of $3.462 billion. VAT on local sales was $358 million, with the bigger chunk coming from taxed imports. Individual income tax, at $737 million, is Zimbabwe’s second largest contributor to revenue.
While shelving the VAT measure, Chinamasa said Zimbabwe has the longest list of VAT exemptions in a Southern African Development Community (SADC) region which has agreed to harmonise taxation matters and co-ordinate tax regimes.
However, Zimbabwe, which adopted the United States dollar as its accounting currency in 2009, is a much more expensive producer compared to its regional peers who have seen their currencies weaken considerably against the greenback over the past three years.