KINGSTONE ZIMUNYA
HARARE — In September 2023, OK Zimbabwe warned of the 'forced death' of formal retailers, brought on by the emergence of 'downtown tuckshops' which price their goods in United States Dollars.
This was mentioned in a 'press advertorial' for the retailer's 'DollarDeal' promotion—its almost vain attempt at attracting said United States Dollars.
Truth is, this was a veiled outcry to government, which ended up starting a controversial dialogue in the corridors of policy makers.
Permanent Secretary in the Ministry of Finance George Guvamatanga went on to savagely claim that if he was the OK Zimbabwe board, “I would fire you because you will be useless management!”
In the end, though, government chose to take the formal retailers' side.
Why? Revenue and compliance, of course.
Formal retailers pay taxes, rates, and other regulatory fees to government. They are also obligated to price their stock using the official exchange.
This is why it came as no surprise to most when Finance Minister Mthuli Ncube announced a raft of measures meant to "support retailers and prevent them from facing unfair competition from informal traders" as part of his 2024 National Budget Presentation to Parliament on November 30, 2023.
And like clockwork, on January 3, The Zimbabwe Revenue Authority (ZIMRA) announced the implementation of these new tax measures in a public notice.
.jpg "ZIMRA announces new tax measures 2024") |
| Serving interests — ZIMRA announces new tax measures for 2024 |
The standout move by ZIMRA is the prohibiting of companies that are not registered for Value Added Tax (VAT) from purchasing goods directly from wholesalers.
The measures in the Finance Act are summarised as follows:
Manufacturers are authorised to supply Wholesalers only.
A: The wholesaler must: a) Have a wholesale licence b) Be registered for VAT; c) Have a valid tax Clearance Certificate;
B: Wholesalers which are not VAT registered and do not have a current tax clearance certificate and retailers are no longer allowed to purchase goods from a manufacturer.
C: There is no limit of the value of goods that can be purchased.
Wholesalers must supply:
1. Retailers
A: The Retailer must: a) Have a retail licence b) Be registered for VAT; c) Have a current tax Clearance Certificate;
B: There is no limit of the value of goods that can be purchased.
2. Any other person, which includes:
a) Retailers not in 1 above i.e. not registered for VAT. b) Informal traders c) Individuals
1. Purchases from the same wholesaler should not exceed USD1,000.00 (or its equivalent in ZWL at the auction rate of exchange that prevailed on the date of the purchase) in a period of not less than 30 days; and
2. Produces a receipt of goods purchased from the same wholesaler that is dated no earlier than 30 days from the date of the last purchase
3. Any person who purchases for the first time from that wholesaler in any calendar year, or if the person concerned cannot produce a receipt in proof of a previous purchase from the same wholesaler, such person can only purchase goods not exceeding USD20.00 (or its equivalent in ZWL at the auction rate of exchange prevailing on the date of the purchase).
NB:
1) The wholesaler shall retain all copies of receipt produced in proof of previous purchases for a period of at least 3 years, or may scan and store such data in digital format in a manner approved by the Commissioner.
2) A wholesaler who was not operating a facility for the purchase of goods by a person other than a registered operator under the conditions as specified in the table above before the 1st January, 2024, shall not avail such a facility after that date without the leave of the Commissioner in writing.
An “informal trader” is defined in the Finance Act as an individual who carries on a trade for his or her own account but is not a registered operator without limiting the generality of the term.
This includes—
(a) a hawker or street vendor; and
(b) a person who sells articles at a place commonly known as a “people’s market” or a “flea market”; and
(c) the operator of a tuck shop, that, one who sells good on premises, including residential premises, not licensable by the local authority for the sale of goods on a regular basis;
(d) any intermediary for any informal trader or informal traders generally who buys goods from a manufacturer or wholesaler and sells them to informal traders;
In the notice, ZIMRA encouraged informal traders to register through Kiosks or self-service centres at ZIMRA offices, and there after a Tax Clearance Certificate (ITF263) can be issued.
CONSIDERATIONS
Of course, Mthuli Ncube, the former Chief Economist at the African Development Bank, would implement such a tax regime, considering he is facing a US$330mn budget deficit for 2024, and mounting external debt.
However, in a bid to encourage tax compliance and bolster government revenue, government runs the risk of adding fuel to the fire—giving even more power to the informal retailers.
In a country which ranks 157th (out of 180) on the Transparency International Corruption Index, loopholes are always going to be found.
The ever expanding black market is likely to further expand in 2024, and contribute to increased externalisation of the supposedly scarce United States Dollar. The Finance Minister forgets that he lifted import duties on basic goods in May 2023.
Secondly, whilst the sounding of the alarm by formal retailers in late 2023 was expected, can we honestly say that they are the only economic player being shortchanged by the country's economic reality?
If the situation is really that bad, how did OK Zimbabwe recently acquire three branches of the Food Lovers Franchise, and open a new Bon Marche store in Marondera?
Even on paper, the tale reads differently. OK Zimbabwe's half year financial results for the period ended September 30, 2023 reflect revenue growth of 60,38% to ZW$727,9 billion.
This allowed the firm to ultimately post a 52,32% increase in profit after tax to ZW$21,22 billion in the period under review.
One might be led to believe formal retailers are just trying to snuff out the competition so they can have the cake all to themselves.
Finally, we've all witnessed just how much shameless profiteering formal retailers can get away with. Remember, this is how informal retailers ended up gaining the bulk of customers, most of whom face ever-dwindling real incomes.
Chances are, formal retailers will just pass on any increased cost brought about by this new tax regime. If they could use exchange rate distortions as an excuse to charge high prices (relative to the 'downtown tuckshops'), what will stop them from taking this newly presented opportunity?
Why waste our time on predictions? A quick survey by the Bizsphere team on January 4 revealed that most formal retailers in the Harare Central Business District had started hiking their prices, noticeably the price of meat.
Faced by an anticipated poor harvest, a local currency that is on a free fall, and now this tax regime; it's looking like a bleak 2024 for the average Zimbabwean, just five days in.
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