Petroleum industry hit hard by taxes


Energy and Power Development permanent secretary, Partson Mbiriri

PLAYERS in the petroleum sector have expressed disquiet over government’s tax regime, which they say is punitive and should be revised downwards to make them viable.
Zimbabwe’s tax charges for petroleum products are the second highest in the region after Malawi.
Government, early this year hiked duty on fuel by between 28 percent and 33 percent.
Customs duty on leaded petrol was increased from US$0,35 per litre to US$0,45 per litre, unleaded petrol from US$0,35 per litre to US$0,45 per litre while diesel was increased from US$0,30 per litre to US$0,40 per litre.
This, in part, led to high prices for the products on the local market despite global oil prices weakening.
Prices of crude oil were below US0,38 a litre this week and have been steadily going down from US$0,99 a litre in June last year, resulting in most regional countries lowering fuel prices.
Local fuel retailers have also not been able to lower their prices as expected, as the global price of the commodity tumbles, to achieve super profits at the expense of consumers.
Fuel prices have ripple effects on the pricing of other commodities as it is a major cost driver in the productive sector of the economy.
To determine the pump price the Zimbabwe Energy Regulatory Authority (ZERA)’s current pricing formula incorporates taxes and levies, administrative costs and distribution costs that include freight, duty, ZINARA road levy, carbon tax, debt redemption, strategic reserve levy, storage and handling costs (levied twice under administrative and distribution), clearing agency levy, financing costs, inland bridging costs, secondary transport costs and an oil company or dealer margin of seven percent.
Speaking at a petroleum sector pricing study stakeholder workshop this week, Energy and Power Development permanent secretary, Partson Mbiriri, said government is in discussions over the issue but warned that it would lose revenue of about US$16 million a month if it takes away current taxes.
“Taxes are raised by the Finance Ministry,” said Mbiriri.
“As you might be aware, the country’s revenue streams are low at the moment, with the Zimbabwe Revenue Authority failing to meet its targets and Treasury wants to balance its books.
“All I can say at the moment is that this matter (tax review) is under discussion but what I can’t indicate is the likely outcome of the discussions. It really remains to be seen but when the decision is made you will be the first ones to know.
“If we take the taxes away, it means government is going to lose US$16 million revenue per month. It’s really a difficult situation,” he said.
The outcry on unfair tax charges comes at a time when government has engaged a South African company, Genesis Analytics, to come up with a pricing mechanism that should benefit all stakeholders in the petroleum sector.
This exercise is the first by ZERA since its formation.
The objective of the study is to review the cost build-ups of petroleum products as stated in the Statutory Instrument (SI) 80 such as freight on board prices at the port of Beira, taxes and levies, administrative, blending and distribution costs from various sources of origin to the point of final consumption of fuel.
A good pricing model should allow players in the industry to recover efficient cost as well consumers’ to pay fair prices.
ZERA chief executive, Gloria Magombo said: “It’s time to review the current pricing methodology and the cost build-up. We look at what is happening from the sources of origin to the final point of consumption. We would want to benchmark the fuel pricing in Zimbabwe with regional and international best practices and also advise on the efficient fuel pricing structures to ensure the petroleum supply is reliable, adequate and sustainable while the retail prices are fair.”


ZERA chief executive, Gloria Magombo

The pricing template, in use today was inherited from the Control of Goods Regulations. It has, however, become necessary to update the model because the market has changed after the dissolution of National Oil Company of Zimbabwe, which used to procure and distribute petroleum products in Zimbabwe, to establish efficient costs of supply in the supply chain.
Government liberalised the fuel sector in 2008 allowing individuals and private companies with free funds to source petrol and diesel offshore for sale on the local market.
But this has led to international oil companies to establish a cartel which has connived on retail fuel prices on the local market, preventing a cut in prices each time global oil prices tumbled.
While neighbouring countries have significantly cut fuel prices in line with current falling international prices, this has not been the case in Zimbabwe, which imports all its petroleum products, as local fuel traders maintained punitive fuel prices.
Most fuel retailers are currently charging a pump price of US$1,45 per litre and US$1,25 per litre for petrol and diesel.
Though the prices are lower than the US$1,51 and US$1,33 per litre for petrol and diesel that was being charged at the beginning of the year, consumers feel the fuel prices are still very high compared to other countries in the region.
This is despite the fact that government in 2013 unilaterally introduced mandatory blending of petroleum products which would make local petrol cheaper.
The country is currently selling petrol mixed with 15 percent ethanol content (E15).