SHOCKING implications of a hefty sugar levy which came into force this January before being massage on Monday drifted into limelight this week, with Zimbabwe’s industries warning that US$1,6 billion in fresh costs will be added to beverages producers annually.
Warning of a potential ‘wipe out’ of a sector that is already battling diminishing demand, the Confederation of Zimbabwe Industries (CZI) said the levy was too high.
The sugar levy, one of a raft of taxes and other statutory obligations introduced by Finance, Economic Development and Investment Promotion Minister Mthuli Ncube in the 2024 national budget, had already been blamed for waves of recent beverage price hikes.
Under the sugar levy, Ncube wanted to collect US$0,02 for every gramme of sugar contained in beverages. He slashed the figure to US$0,001 per gramme this week.
There has been a drumbeat of anger across Zimbabwe since the budget was announced in November, with frustrated markets blaming Ncube for abating an already dire economic crisis by imposing measures that have forced companies to pass on huge costs to consumers.
But as CZI warned in its 12- page paper submitted to government on December 12, ramifications of steep taxes and levies will cascade beyond consumer markets and trigger an escalation of de–industrialisation.
The paper warned that government would collect more money for every tonne of sugar than the actual cost of buying the product.
If Ncube had not climbed down, a company buying one tonne of sugar at US$900 would folk out more to pay the levy, the paper noted.
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“This proposed levy is extremely high, and will see beverages being not affordableto consumers,” CZI said it its paper.
“The beverages sector in Zimbabwe uses about 7 000 metric tonnes of sugar per month. The minister proposed to introduce a levy of US$0,02 per gramme of sugar contained in beverages, excluding water.
“This proposed levy is extremely high, and will see beverages being not affordable to consumers. To put things into context, the beverages sector in Zimbabwe uses about 7 000 metric tonnes of sugar per month. When charging the 2 cents per gramme tax, it implies that a kg of sugar pays a tax of US$2, and a metric tonne of sugar will pay a tax of US$20 000, at a time when a metric tonne of sugar only cost US$900.
“This means that for the 7 000 metric tonnes of sugar consumed per month by the beverage sector, they have to pay a monthly tax of approximately US$140 million amounting to US$1,6 billion per annum,” the report noted.
It said the impact of the levy would be felt from businesses to consumers, while opening up the market to cheaper imports.
“Consumers will not be able to afford the products and the beverage sector will be wiped out by competition and fail to make any sales. To paint a clear picture the introduction of the 2 cents per gramme levy will increase the cost of final beverage products by an average factor of six times factoring VAT (value added tax) and retail margins,” the report noted.
It gave the example of two litres of Mazoe cordial juice, which currently retails at US$2,80, but may end up costing US$21 after the levy is effected.
“A 300ml coke currently selling for US$0,25 will now cost US$1,10. Pfuko maheu, currently retailing at US$ 0,50 will now cost US$3,40. The magnitude of these price increase will drive the beverage sector out of business,” CZI warned.
The sugar levy was one of many taxes and levies announced in the budget, which were reviewed or abandoned this week.
Announcing the reviews, Ncube said; “cognisant of the need to build volumes, the special surtax on sugar content on specified beverages has been adjusted to US$0,001 /gramme and will be effective on the date of gazetting. For the avoidance of doubt, the special surtax will apply on added sugar only. In addition, given the possibility of substituting sugar with sweeteners, these will be deemed as sugar for tax purposes. As revealed through the consultation process, the increase in price of the beverage products should be modest, hence the tax is not expected to disrupt the market”.
CZI also said a proposed wealth tax would see Zimbabwe losing millions of dollars by directing investments into offshore real estate.
According to Ncube, the goal was to guarantee vertical equity, in which taxpayers who possess greater wealth or property make proportionate contributions to the fiscus.
But CZI said the tax was not a good idea.
“Residential property has been a store of value in these inflationary times. Also, many in the diaspora have invested in property. And investment in residential property helps to provide much-needed housing in the economy.
“All this investment has created jobs and boosted local industry. A wealth tax is not a good idea for Zimbabwe, a nation that wants to build wealth. Stakeholders will read this tax as a message that says "attempt to create your riches outside Zimbabwe," CZI argued.
