Those importing vehicles and selected luxury goods will still have to pay for duty in foreign currency according to the Zimbabwe Revenue Authority (Zimra). Of course, this is not good news given that many expected that the introduction of the interbank exchange market would scrap payments in foreign currency.
The Money Policy Statement (MPS) introduced the interbank exchange market two weeks ago. Banks then started trading with the RTGS Dollar starting at 2.5 against the US Dollar. In that light, many thought there was no longer a need for Zimra to continue charging duty in foreign currency. The thinking was that government would just convert whatever duty to RTGS Dollars at the prevailing rate. To the contrary, Zimra has said that Statutory Instrument 252A of 2018 which allows for payment of duty in forex still stands. State owned newspaper, The Herald spoke to Ms Faith Mazani, the Zimra Commissioner General who said, “The Statutory Instrument is the law that has to be repealed first. Until it is repealed, Zimra will continue collecting duty on selected goods in foreign currency.” It looks like government is reluctant to repeal this law.
Why duty in forex?
What is the justification for collecting duty in foreign currency? By charging duty on vehicles and goods considered to be luxurious, government is trying to discourage “wastage” of foreign currency on non-productive goods. So, they made it painful to import any of those goods. It is evident that foreign currency remains in short supply even after the MPS changes although exchange rates have gone down substantially. Foreign currency can now be accessed officially at Banks and Bureaux de Change around the country. Duty in foreign currency can also be used to push consumers to buy locally produced goods. Unfortunately, the vehicle industry in Zimbabwe is still too small that discouraging importation of vehicles will not always achieve the desired outcome. Locally assembled vehicles are still much more expensive than imported ones so people continue buying overseas. However, charging in forex may work when it comes to luxury goods like foodstuffs which are available locally.
Another issue is that government needs a lot of foreign currency to cater for importation of essential commodities like fuel and medicines. In fact, government is so desperate for forex that they are taking some from exporters of gold, tobacco and other things. As a result, it is likely that they would want to continue charging duty in foreign currency. And of course keeping an organisation out of the market for forex as much as possible keeps demand for dollars down, hence somewhat aiding stabilisation of the exchange rate.
There are some undesirable consequences associated with continuing to charge duty in foreign currency. The demand for forex will remain high and people will flood official channels in a bid to access cheaper foreign currency. Increased demand will result in scarcity. This in turn may lead to the proliferation of the parallel market because we all know that forex never runs out on the black market. But, it will become more and more expensive due to its scarcity. Although the parallel market remains illegal, people use it often.
It may still be a long way before government scraps duty in foreign currency. For now, they need the hard currency. If they had a choice, they would even charge for more things in forex because whatever they are collecting from various sources is clearly not enough.