HARARE – The reversal of the 15 percent hike on value-added tax (Vat) on all meat products and cereals will come into immediate effect and there will be no postponement of the implementation date, Finance minister Patrick Chinamasa has said.
A Government Gazette notification was issued yesterday and no retailer would be allowed to sell the named items in statutory instrument (SI) 20 of 2017 — covering all meat products, including offals and fish, rice, maheu and margarine — above the prices stipulated in the notification.
The reversal of the Vat hike — meant to collect funds to help cover for Zimbabwe’s large budget deficit and broaden the tax base — was done after a huge public outcry and sustained pressure from political parties.
Chinamasa was forced to reverse SI 20 after it caused a sharp surge in prices. The Vat hike had caused lowest grade meat prices to shoot from $3.80 to $4.50 /kg.
Given the ugly fiscal situation, economists had warned that bumping up what is one of the poor country’s lowest consumption tax rates was a no-brainer and warned that coupled with US dollar shortages, it would spur higher inflation.
The food basket had also rose by $11,30 or 8,49 percent from $133,06 by end of December to $144,36 by end-January 2017, driven by the Vat hike, the Consumer Council of Zimbabwe said, putting food inflation firmly back on the economic agenda.
The Vat hike had tested President Robert Mugabe’s political popularity.
After the Vat was waived following a sharp decline in the purchase of the products as consumers moved to other substitutes, prices of basic commodities remained up, despite the government having suspended SI 20.
Noting the resistance of retailers since the reversal was issued, the Finance ministry yesterday sought the immediate implementation of the reversal.
“It is hereby notified that the minister of Finance and Economic Development has, in terms of Section 78 of the vat Act (Chapter 23:12) made the following notice that the Vat (General) (Amendment) Regulations, 2017 (No. 42), published in SI 20 of 2017, are hereby repealed,” the gazette said.
“The first schedule to the Vat (General) Regulations, 2003, . . . is amended in Part I.”
The new regulations will be valid for one year.
Chinamasa had said SI 20 was one of a package of measures he hoped will help unlock funds needed to boost government finances.
But the measures had depressed sales and reduced the State’s take, as happened after the previous Vat raises. Consumers had reduced the volume of the goods consumed and spend on the same amount, some resorting to less quantities of the product.
The tax hike had struck right at the heart of a stuttering economy: at consumer spending, which — unusually for Zimbabwe and in spite of the export-boosting effects of a basket of foreign currencies — has contributed more to recent slow growth than foreign demand or business investment.