THE Confederation of Zimbabwe Retailers (CZR) says government’s decision to reinstate the value-added tax (Vat) on rice will cause local product prices to exceed regional averages, consequently driving the informal sector to import goods and making local shops uncompetitive.

This comes after government promulgated Statutory Instrument (SI) 15 of 2024 in accordance with  section 78 of the Value Added Tax Act [Chapter 23:12], to modify the existing regulations by providing clarity on the goods, services, and imports that are exempt from value-added tax.

The SI reinstated Vat, while duty exemptions were also removed on basic commodities.

The SI, however, exempts services like water supplied through a pipe for domestic use, domestic electricity supply, rates charged by a local authority, items of agricultural equipment or machinery, fuel and fuel products, and ethanol fuels, among others.

In a statement yesterday, CZR president Denford Mutashu said standard Vat on rice would result in the local product prices being higher than those of the region allowing the informal sector to import cheaper brands, rendering local retailers uncompetitive.

 “Given that rice is a staple food in many households and boarding schools, we intend to engage the government to have it reinstated on the exemption list,” Mutashu said.

“This is particularly crucial in light of the expected El Niño-induced drought and to ensure regional parity, as rice is exempt in the region.

“Locally, being subject to standard Vat will result in a 15% higher cost compared to cross-border traders from South Africa and Mozambique, potentially leading to informal sector trade and rendering local retailers uncompetitive.”

Mutashu said the change in Vat status and the reintroduction of duty on basic commodities was meant to ensure the availability and optimal pricing of basic foods on the local market.

“We have noted various concerns expressed in the media and by the public regarding the prices of basic commodities, stemming from the change in Vat status and the reintroduction of duty on basic commodities, effective February 1, 2024,” he said.

“We would like to provide an overview of the current status and outline the measures we are implementing to ensure the availability and optimal pricing of basic foods.”

The CZR president said as of January 1, 2024, SI 248 of 2023 exempted Vat on all basic foods such as maize meal, rice, sugar, cooking oil, flour and bread.

He said the only change was the transition from zero rating to Vat exemption, resulting in suppliers being unable to claim input Vat on taxable supplies.

“We estimate the cost of this change to be between 2 and 3%,” he said.

Mutashu said the decision was made by the government to address the negative impact on the fiscus due to massive Vat refunds on zero-rated products and the anticipated El Niño-induced drought and lower commodity prices which are likely to lower tax revenue in the short term.

“The impact of the 2-3% change was deemed unsubstantial and a fair compromise given the circumstances. This aligns with regional parity Vat” he said.

“Basic items such as soap, washing powder, and petroleum jelly have always been subject to standard Vat rates. They were temporarily exempted for a period of six months, from February to August, before the exemption was extended to January 31, 2024. We appreciate the government’s intervention to alleviate price hikes during that time.”

Mutashu said the prices for basic commodities had gone down, adding that CZR is committed to maintaining engagements with the government to ensure price stability.

He urged businesses to price goods responsibly to protect vulnerable consumers across the country.

“We will closely monitor the situation and maintain ongoing communication with local manufacturers. Should local pricing exceed import parity, we will swiftly engage the government to address this disparity,” he said.

“We can confirm that prices of bread, maize meal and other commodities have stabilised and are in line with import parity. We will now approach the government regarding the exemption of Vat on rice.”