Mthuli Ncube considers fuel tax cut

The government is considering lowering taxes on fuel to ease the burden on consumers following the liberalisation of the foreign exchange market last week. This is coming as the government is also planning to revise its projected GDP growth rate to below 3% from an initial projection of 5,4%.

Last month, the government hiked the price of fuel by 150% after increasing the tax on fuel. The surge in the fuel price, which came on the backdrop of erratic supplies, triggered wildcat riots in the main urban centres which led to the destruction of public and private property worth hundreds of millions of dollars. Four people died during the riots and dozens were injured across the country.

High level sources at the Ministry of Finance told Business Times this week that the Treasury could soon reduce tax on fuel to cushion motorists who are now paying up to RTGS$3,33 for a litre of petrol. The reduction in taxes is in anticipation of exchange rate fluctuations following the establishment last week of an interbank foreign exchange market.

The government, through the Zimbabwe Energy Regulatory Authority, is currently charging fuel retailers RTGS$2,48 and RTGS$2,11 in duties, taxes and levies for petrol and diesel respectively.

According to a source privy to the developments, “the finance minister has declared a war on inflation, and managing inflation is one of his top priorities. He is also expected to reduce lower growth rate projections to match economic developments.” Finance Minister Mthuli Ncube could not be reached for comment as he was said to be attending the bi-national meetings between Zimbabwe and Botswana.

His permanent secretary, George Guvamatanga, also did not respond to questions sent on his mobile phone. Before the liberalisation of the market last week, foreign exchange premiums on the parallel market which ranged from 1,40 to 1,80 to the US dollar in September 2018 had increased to between 3 and 4 to one US dollar.

This movement in forex premiums has had negative pass-through effects on inflation which increased from the September year-on-year level of 5,4% to 20,9% in October, and closed the year at 42,09%.

Annual inflation for January 2019 spiked to 56,9%, evoking memories of yesteryear when prices rose by a record 231 million per cent.

The governor of the Reserve Bank of Zimbabwe, John Mangudya, said fuel prices were expected to soften in the medium term. “The recent fuel price increase, while temporarily inflationary in the short term, will be neutralised by supply side gains, as well as by positive payoffs from on-going economic reforms in the fiscal and monetary sectors” he said in his Monetary Policy Statement last week. “The anticipated fall in international oil prices will also see inflationary pressures relenting, buttressed by other positive external developments.”

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