The announcement of the pegging of the exchange rate of our local currency now dubbed the RTGS dollar has sent shockwaves throughout the economy as people begin to adjust to the new reality. Those who were in the process of importing items were met with a surprise as the change in currency position also had implications on customs duty payments. The statement did not amend duty however interpretation of the statement along with its statutory instrument 33 of 2019 means duty has effectively been hiked.
While there has been no movement on the SI 252A of 2018 items, those items where duty was payable in local money may have experienced a near threefold duty increase. This is because the Cost, Insurance and Freight (CIF) value of goods imported will now be calculated based on the US$1:ZWL2.5 rate if we use a strict application of the act. The message is consistent with what we heard from ZIMRA on the issue of foreign currency duty payments.
If you intended to import items which were not on the SI 252A of 2018 list worth US$10 000 CIF attracting duty of 25% the following treatment would apply under the old and new rules
CIF * 25%
10 000*25%=$2500 payable in RTGS$
CIF * 2.5 * 25%
$10 000*2.5=$25 000
$25 000*25%=$6 250 payable in RTGS$
I’ve kept the example simple here and excluded items like VAT which would further compound the increment. This has just drastically increased the cost of importing.
Government Revenue boom
Well one thing is for certain this will put more money into government coffers. In addition to the much maligned 2% tax government has pulled another move that will aid their bottom line. While this is all well and good it should not come at the expense of an already overburdened populace. However, this is what we are currently faced with.
Clearing agents already caught off guard
Customs and clearing agents were caught off guard as ZIMRA started to apply the new exchange rates to their holding accounts. Clearing agents have bonded accounts held with ZIMRA as prepayment for items they will clear. Prior to the MPS the amounts in these accounts were denominated in US dollars thus with SI 33 of 2019 they became balances in RTGS$ hence devaluing the prepayments by a factor of 2.5.
It starts to sound like a broken record but we really need better communication on policies. We do understand that monetary policy statement was delayed and the announcement may have been rushed to save any further time wastage. Surely other government departments like Zimra should have rolled out their explanations and interpretations to the public in order to help people get to grips with the new situation sooner. Where values for Duty purposes were previously stated in US dollars this still holds. An example is the maximum value of a gift which was US$90 still remains at US$90 and is not affected by the change in currency.
The effective duty hike will go to the bottom line and ultimately make imports more expensive, this is great in the view of import substitution but what about the cases where imports cannot be substituted or raw materials are imported? Further inflationary pressure can be expected.