Fuel tax rebate boost for business

The implementation of the January promise to refund registered businesses in the productive sectors and the additional excise duty on fuel is a step in the right direction in efforts to induce more stability in the economy.

Indeed Statutory Instrument 72 of 2019 will have an effect on business viability.

For the transport sector the rebate is obviously critical if fares are to be held at presently agreed levels or to be reduced. Fuel is a major component in the cost structure of a bus or trucking company. Fuel is the major raw material, if you put transport into the same categories as other industries, of a bus company.

But, as the Zimbabwe Transport Organisation has pointed out even more critical to viability than the fuel price is the availability of fuel. Bus companies, or truckers can make money if they are hauling fare-paying passengers or cargo. They cannot earn anything, even if fuel was of a trivial price, if the buses or trucks are parked in the courtyard or in a long fuel queue waiting for a delivery.

For ZTO a lower fuel cost allows them to charge less.

For mining and agriculture fuel is one of the costs, and since their pricing is far more dependent on world prices, every component of their cost structure has to be contained so that they remain viable even with fixed external prices that they cannot raise or lower. The rebate will help ensure viability.

For manufacturers, there appears to be two pricing models floating around. One lot simply use the US dollar prices and cost structure they were using up to the middle of last year and convert at the latest street price for RTGS dollars when pricing their goods. For this group the rebate on fuel taxes will have zero effect on their pricing, or on their wage bills, but will help pump up their profits, if there are any.

For the growing majority of manufacturers who have now returned to best practice and normal accounting systems, a reduction in their fuel costs will be useful in increasing market penetration against the first group and will help their customers.

This group of manufacturers calculate their final price on the actual costs they incur in manufacturing, everything from the cost of raw materials, their wage bill, their tax bill and so on, and then add a profit margin.

As the Confederation of Zimbabwe Industries has noted, fuel is not a major cost for the overwhelming majority of manufacturers. But those businesses determined to grow will still be queuing to take advantage of the rebate because they are looking at shaving every possible cost. And as we already see for the retail price of goods from these companies, they will pass on to their customers even a 1c drop in costs on an item, because they have set up an efficient costing structure and believe that so long as they retain market share and boost volumes they will make fair profits.

So for these companies, even if fuel is just two percent of their costs, they will probably shave their final price by one percent when the cost of their fuel is, in practical terms, more than halved.

Consumers have in recent months become far less worried about brand loyalty and far more concerned about costs, as some manufacturers have discovered to their delight or to their detriment.

As Zimbabwe’s economy continues to progress, competition will continue to grow and those who exercise strict cost controls will be the real winners, along of course with the customers who appreciate efficient manufacturers who believe in keeping their prices as competitive as possible. And ensuring they have the right receipts and filling in a form properly is not that onerous when controlling costs.

For the same statutory instrument makes it clear that there will be a demand for careful and precise paperwork. Zimbabwe knows, to its cost, that there are a surprising number of cheats who want to make money by manipulating pieces of paper than doing anything productive or constructive. The rebate is a tax matter, so already there are serious penalties in place in ordinary law for fiddling the figures. But the Government has gone a bit further and made fiddling the paperwork for the fuel tax rebate even more severe. Experience teaches us that a couple of people will have to go to jail before the message sinks home, but no one else will weep.

The rest of the statutory instrument deals with sensible practicalities. For example a business that owes taxes will not get a payment into its bank account but just a cut in what it owes Zimra. But even that is a benefit not to be sneezed at since Zimra are so difficult about companies that owe taxes.

So the rebate is a useful step in the continuing battle to normalise the Zimbabwean economy.

For most it is one of the many steps that have already been taken, and are still being planned, as we move towards a vibrant and prosperous future.